Improved RSI for NT8

The RSI is among the most popular oscillators and was first introduced by Weilles Wilder in his book, New Concepts in Tehnical Analysis (1978). This version has added graphic plots for when the RSI threshold values are reached.

Indicator Description

The RSI indicator was developed to address two common issues seen with momentum calculations:

  • Erratic output caused by values being dropped off in the lookback period
  • Lack of a constant benchmark in order to facilitate comparisons

To minimize price distortions, Wilder therefore added smoothing to the momentum calculation. He also set a constant vertical range from 0 to 100. Values above 70 indicate overbought- and below 30 oversold scenarios. However, initial moves into the overbought/oversold areas are often simply early warnings and the price move may still continue.

To avoid premature exits, Wilder therefore combines the oscillator analysis with setting of higher highs or lower lows. You’ll wan to do that in order to identify price failure swings or divergences. In combination with other tools, you may also use the RSI indicator to identify entries, i.e. when crossing above/below the 30 /70 thresholds.

For example, the RSI indicator may be used with the Library Roofing Filter to correct distortions in the fixed scale threshold readings. You will then see that the threshold levels adjusting automatically according to the current trend scenario.

Other Library Momentum Oscillators

The Indicator Library also features the Connors RSI, Laguerre RSI, Slow RSI and the Stochastic RSI. A previous issue of the Indicator Spotlight newsletter also discussed the TDI indicator, applying the RSI in 3 timeframes. 

You may best use the Relative Strength Index in combination with a mid/higher time frame trend filter, confirming setups with volume analysis. For example, consider reviewing the Force Index, the Regression Channel, the Projection Oscillator, Heikin Ashi candles or the Donchian Channel as featured in our Indicator Spotlight.

Other library momentum oscillators

The momentum oscillators category feature a number of other entries, including the Awesome Oscillator, Double Smoothed Momentum, Double Smoothed Momentum and a new and improved version of the standard Stochastic. The library also has a category for advanced oscillatiors, containing among others the Quantitative Qualitative Estimation (QQE) and the Commodity Channel Index (CCI).

These tools build on the same concept as the standard momentum oscillators, but with a higher degree of sophistication. In general, they allow for added value approaches, utilizing a set of more complex algorithms. Finally, the Ichimoku Kinko Hyo may also be considered as a momentum indicator.

The indicator is available for NinjaTrader 8.