[blackcat] L1 Composite RSI-DMI Reversal Indicator

4 ott 2020

Level: 1

Background

The Relative Strength Index (RSI) developed by J. Welles Wilder is a pulse oscillator that measures the speed and change of price movements. The RSI hovers between zero and 100. Traditionally, the RSI is considered overbought when it is above 70 and oversold when below 30. Signals can be generated by looking for divergences and error fluctuations. RSI can also be used to identify the general trend.

The Directional Movement Index (DMI) is an indicator developed by J. Welles Wilder in 1978 that indicates the direction in which the price of an asset is moving. The indicator compares previous highs and lows and draws two lines: a positive directional movement line (+ DI) and a negative directional movement line (-DI). An optional third line called Directional Movement (DX) shows the difference between the lines. When + DI is above -DI there is more upward pressure than downward pressure in price. When -DI is above + DI, the price continues to fall. This indicator can help traders estimate the direction of the trend. Crossovers between the lines are also sometimes used as trading signals to buy or sell.

Function

[blackcat] L1 Composite RSI-DMI Reversal Indicator combines J. Welles Wilder's RSI and DMI indicators together to identify trend reversals.

Key Signal

swinglow --> swing signal
trend --> trend signal to identify top reversal

Pros and Cons

Pros:

1. it exhibit leading character
2. it can disclose top and bottom reversals


Cons:

1. noise exists
2. depends on market and trading pairs


Remarks

Composite J. Welles Wilder indicator

Readme

In real life, I am a prolific inventor. I have successfully applied for more than 60 international and regional patents in the past 12 years. But in the past two years or so, I have tried to transfer my creativity to the development of trading strategies. Tradingview is the ideal platform for me. I am selecting and contributing some of the hundreds of scripts to publish in Tradingview community. Welcome everyone to interact with me to discuss these interesting pine scripts.

The scripts posted are categorized into 5 levels according to my efforts or manhours put into these works.

Level 1 : interesting script snippets or distinctive improvement from classic indicators or strategy. Level 1 scripts can usually appear in more complex indicators as a function module or element.

Level 2 : composite indicator/strategy. By selecting or combining several independent or dependent functions or sub indicators in proper way, the composite script exhibits a resonance phenomenon which can filter out noise or fake trading signal to enhance trading confidence level.

Level 3 : comprehensive indicator/strategy. They are simple trading systems based on my strategies. They are commonly containing several or all of entry signal, close signal, stop loss, take profit, re-entry, risk management, and position sizing techniques. Even some interesting fundamental and mass psychological aspects are incorporated.

Level 4 : script snippets or functions that do not disclose source code. Interesting element that can reveal market laws and work as raw material for indicators and strategies. If you find Level 1~2 scripts are helpful, Level 4 is a private version that took me far more efforts to develop.

Level 5 : indicator/strategy that do not disclose source code. private version of Level 3 script with my accumulated script processing skills or a large number of custom functions. I had a private function library built in past two years. Level 5 scripts use many of them to achieve private trading strategy.

24 mar

Note di rilascio

█ OVERVIEW
The [blackcat] L1 Composite RSI-DMI Reversal Indicator provides traders with a comprehensive tool to identify potential market reversals based on a combination of Relative Strength Index (RSI) and Directional Movement Index (DMI). This advanced technical analysis indicator helps users pinpoint both buying and selling opportunities within their preferred trading assets.

FEATURES

• Utilizes custom functions to determine the most recent valid data points and compute weighted averages.
• Integrates RSI and DMI calculations to assess price momentum and directionality.
• Identifies swing lows to indicate possible bottom formations.
• Visualizes trends through colored candle plots and background highlights.
• Includes horizontal reference lines for clearer interpretation.

HOW TO USE

1 — Apply the script to any chart by selecting it from the TradingView indicators library.
2 — Customize settings if desired; otherwise, default parameters should suffice for general use.
3 — Monitor the swings and trends highlighted on the chart:
• Green background indicates a strong buy signal when swing low readings are below 3.
• Red background signifies a strong sell signal when trend readings exceed 200.
• Yellow trend line suggests neutral conditions or ongoing trends.

LIMITATIONS

• The effectiveness of this indicator varies depending on market volatility and asset class.
• Users may need to adjust input lengths and weights to better suit individual strategies.
• False signals can occur during ranging markets or during extended periods of trending without retracement.

NOTES

This indicator combines several well-known oscillators and directional tools into one cohesive system, offering traders a multifaceted approach to identifying profitable trade setups. Always consider combining multiple indicators and performing thorough backtesting before implementing automated trades.