The RSI is a contrarian indicator bounded between 0 and 100 where values close to the area of 30 represent an oversold condition and values close to the area of 70 represent an overbought condition.
Generally, we use the area of 70/75 and the area of 30/25 as extremes that signal a market reversal or a correction. But what if we calculate a simple way to make these levels more dynamic?
The main idea from these objective support and resistance levels is that market regime and dynamics move and as such fixed levels are unlikely to always provide value which means that we can try creating variable levels. The objective support and resistance levels are created following these steps: * Calculate a 14-period RSI on the close price, let's call this RSI_Close. * Calculate a 14-period RSI on the high price, let's call this RSI_High. * Calculate a 14-period RSI on the low price, let's call this RSI_Low. * Calculate the maximum range which is the highest value of RSI_High in the last 200 periods minus the lowest value of RSI_Low in the last 200 periods. Let's call this Max_Range * Define the range width. By default, it is set to 5%. Let's call this Threshold. * The objective support is calculated as the sum of the RSI_Low + (Max_Range * Threshold). * The objective resistance is calculated as the sum of the RSI_High - (Max_Range * Threshold).
The levels are used in the same way as the oversold and overbought levels. They are more dynamic as they take into account the fluctuations of the RSI so you might see at some point in time a support at 20 and at another at 35.
hey bro, can you please tell me how to use this? what should we look?
Sofien-Kaabar
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@araein, Hi, the indicator is supposed to give points where the RSI may react earlier than expected. Generally, we believe that oversold and overbought levels may lie around 30 and 70 but the indicator's aim is to gove more objective levels based on the past action. Therefore, one way to use the indicator is to have a contrarian view whenever the RSI approaches either of the two lines (green and red)
liten
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Hey Sofien, Don't see this getting the love it deserves so I just want to say thank you for sharing! L