Ultimate RSI Strategy

### Overview

This Pine Script is a **TradingView strategy** that implements the "Ultimate RSI" indicator as originally designed by LuxAlgo. The script calculates an augmented version of the Relative Strength Index (RSI) and then uses its behavior to generate long and short trading signals. In addition to computing the indicator values, the script visually plots the Ultimate RSI, its smoothed signal line, and constant lines representing overbought, midline, and oversold levels. It also uses color-filled areas to highlight when the indicator is in overbought or oversold regions.

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### Key Components

1. **Strategy Declaration and Settings**
- **Version:** The script is written in Pine Script version 6.
- **Strategy Settings:**
- Declared using the `strategy()` function.
- Parameters include an initial capital of $10,000, a percentage-of-equity position sizing (default 10% per trade), and other currency-related settings.
- `overlay=false` indicates that the indicator is displayed in a separate pane (as it is an oscillator).

2. **User Inputs**
- **RSI Parameters:**
- `length`: The period over which the indicator calculates the highest and lowest values (default 14).
- `src`: The data source (typically the closing price).
- `smoType1`: The smoothing method for the RSI calculation. Options include EMA, SMA, RMA, and TMA.
- **Signal Line Parameters:**
- `smooth`: The smoothing period for the signal line (default 14).
- `smoType2`: The smoothing method used for the signal line.
- **Visual Customizations:**
- Colors for the main Ultimate RSI line (`arsiCss`), signal line (`signalCss`), overbought and oversold levels, and the filled areas (`obAreaCss` and `osAreaCss`).
- Overbought (`obValue`, default 80) and oversold (`osValue`, default 20) levels.
- An option (`autoCss`) to automatically adjust the RSI color based on chart settings.

3. **Calculation of the Ultimate RSI**
- **Highs and Lows:**
- The script calculates the highest and lowest prices over the defined period (`length`).
- **Difference Calculation:**
- It computes a difference value (`diff`) based on whether the high or low changes compared to the previous bar, or simply the price change.
- **Smoothing:**
- Two moving averages are applied:
- One to the raw difference (numerator) and one to the absolute difference (denominator), using the chosen smoothing method (`smoType1`).
- The Ultimate RSI value is then derived by scaling the ratio of these smoothed values into a 0–100 range (with 50 as the midline).
- **Signal Line:**
- A second smoothing (using the chosen method `smoType2` and period `smooth`) is applied to the Ultimate RSI to form a signal line.

4. **Trading Logic and Entry/Exit Conditions**
- **Long Entry Condition:**
- A long (buy) signal is generated when the Ultimate RSI crosses above its signal line *and* the Ultimate RSI is below the midline (50). This suggests a recovery from an oversold condition.
- **Short Entry Condition:**
- A short (sell) signal is generated when the Ultimate RSI crosses below its signal line *and* the Ultimate RSI is above the midline. This indicates a potential decline from an overbought condition.
- **Position Management:**
- Before entering a new trade, the script closes any existing position in the opposite direction. For example, if a short signal occurs while a long position is open, the long position is closed.

5. **Plotting and Visual Elements**
- **Indicator and Signal Line:**
- The Ultimate RSI and its signal line are plotted as lines in the indicator pane.
- **Constant Lines:**
- Instead of using `hline`, constant lines are plotted for the overbought, midline, and oversold levels. This allows them to be used with the `fill()` function.
- **Filled Areas:**
- The area between the Ultimate RSI plot and the overbought level is filled with a specified color when the indicator is above the overbought threshold.
- Similarly, the area between the oversold level and the Ultimate RSI plot is filled when the indicator is below the oversold threshold.
- These fills help visually emphasize extreme conditions on the indicator.

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### Summary

- **Purpose:** The script combines an augmented RSI calculation with a simple trend-following strategy.
- **Signal Generation:** It uses crossovers between the Ultimate RSI and its smoothed signal line to determine entry points, with filters to avoid taking trades when the RSI is near its midline.
- **Visualization:** Clear plots and color-coded areas allow traders to quickly identify when the market may be overbought or oversold.
- **Strategy Behavior:** Designed for both long and short trading, the strategy actively manages positions by closing opposing trades when a reversal signal is generated.

This description should give you a comprehensive understanding of the script’s structure, functionality, and how it can be used within TradingView to both visualize the Ultimate RSI indicator and to backtest a simple trading strategy based on its signals.