Overview The script "VAC - RSI with SMA and EMA Signals" combines the traditional Relative Strength Index (RSI) with Time-based RSI (T-RSI), and adjusts it for volatility to create a Composite RSI (C-RSI). The script further uses Simple Moving Average (SMA) and Exponential Moving Average (EMA) to generate signals for potential trading opportunities. In the "VAC - RSI with SMA and EMA Signals" script, the combination of price, time, and volatility works as follows: Price: The script calculates the traditional RSI based on price changes over a specified period. Time: Alongside the price-based RSI, a Time-based RSI (T-RSI) is calculated, which considers the number of upward and downward closes over the same period. Volatility: Volatility is integrated into the Composite RSI (C-RSI) by adjusting it with a Z-score based on a standard deviation of closing prices. These three factors work together to create a more holistic and robust indicator.
How can it be used? This script is used to identify potential overbought and oversold conditions in the market. It plots the VAC-RSI, SMA, and EMA on a chart, along with overbought and oversold levels, providing visual signals to the trader. When the EMA is below the SMA, it is a bullish signal, and vice versa for a bearish signal.
Default Values for Different Inputs:
Price RSI Weightage (%): 65
Unified Period for RSI & T-RSI: 14
C-RSI SMA Period: 13
C-RSI EMA Period: 33
C-RSI Bull Trend Support: 35
C-RSI Bear Trend Resistance: 65
Use Volatility Adjusted C-RSI (VAC-RSI): true
Standard Deviation Period: 14
Volatility Scaling Factor (α): 5
These values can be adjusted according to the trading strategy to optimize the signals for different assets or timeframes.
Strategies this Can be Used for:
The script can be used in various trading strategies including:
Trend Following: By observing the crosses of EMA and SMA, traders can follow the trend.
Reversion to the Mean: Using the overbought and oversold levels to identify potential reversal points.
Breakout: Identifying breakout points using the Bull and Bear Market Support and Resistance levels.
Comparison with the Standard Indicator:
Enhanced Sensitivity to Market Conditions
Improved Signal Quality
Versatility
Volatility Adjustment
Interpretation of Output Values: VAC-RSI Value: The script provides additional overbought (80) and oversold (20) lines to help identify extreme conditions. SMA and EMA Values: When the EMA is below the SMA, it is generally considered a bullish signal. When the EMA is above the SMA, it is generally considered a bearish signal. The cross of EMA and SMA can be used as a trigger for entry or exit points. Bull and Bear Market Support and Resistance Lines: The Bull Market VAC-RSI Support (default at 35) and Bear Market VAC-RSI Resistance (default at 65) lines can be used to identify potential breakout or breakdown points. In a bull market, if the VAC-RSI stays above the support line, it indicates a strong uptrend. In a bear market, if the VAC-RSI stays below the resistance line, it indicates a strong downtrend.