Dynamic RSI

Dynamic RSI ThinkOrSwim Code

In this section, I’ll take you through the process of building the actual indicator. I find this process to be helpful, because it forces you to understand the nooks and crannies hiding behind each line of the code. By building it from scratch, you know how the code functions, and when the different signals print.

For Volatility Box members, the Dynamic RSI plays a key role in our Edge Signals indicator, which is our custom overbought/oversold indicator.

Step 1: Setting Up Global Variables

declare lower;
input length = 14;
input over_Bought = 70;
input over_Sold = 30;
input price = close;
input averageType = AverageType.WILDERS;
input showBreakoutSignals = no;
input Volatility_Band = 14;
input STDEV_Multiplier = 2;
input RSI_Period = 14;
input RSI_Price_Line = 2;

This block initializes the parameters for the Dynamic RSI, such as the RSI period, overbought and oversold thresholds, and the Bollinger Band settings.

Step 2: Define the Dynamic RSI Calculations

To build the dynamic nature of the RSI, we start by defining the RSI values and add a yellow dynamic average line for smoother signal interpretation.

def NetChgAvg = MovingAverage(averageType, price - price[1], length);
def TotChgAvg = MovingAverage(averageType, AbsValue(price - price[1]), length);
def ChgRatio = if TotChgAvg != 0 then NetChgAvg / TotChgAvg else 0;

def DYNRSI = reference RSI(RSI_Period);
def Price1 = if averageType == AverageType.SIMPLE then Average(DYNRSI, RSI_Price_Line) else ExpAverage(DYNRSI, RSI_Price_Line);
def SDBB = StDev(DYNRSI, Volatility_Band);

Step 3: Plotting RSI and Bollinger Bands

Next, we’ll plot the RSI values along with the middle lines and Bollinger Bands for overbought and oversold zones.

plot RSI = 50 * (ChgRatio + 1);
plot MiddleLine = 50;
plot MiddleLine1 = 70;
plot MiddleLine2 = 30;

plot DYNAverage = Average(DYNRSI, Volatility_Band);
DYNAverage.SetDefaultColor(Color.YELLOW);
DYNAverage.SetLineWeight(2);

plot UpperBollinger = DYNAverage + STDEV_Multiplier * SDBB;
UpperBollinger.SetDefaultColor(Color.RED);
plot LowerBollinger = DYNAverage - STDEV_Multiplier * SDBB;
LowerBollinger.SetDefaultColor(Color.GREEN);

Step 4: Adding Overbought and Oversold Signals

To capture signals, we plot arrows for overbought and oversold levels, which trigger when the RSI crosses these boundaries.

plot OverSold = over_Sold;
plot OverBought = over_Bought;
plot UpSignal = if RSI crosses above OverSold then OverSold else Double.NaN;
plot DownSignal = if RSI crosses below OverBought then OverBought else Double.NaN;

UpSignal.SetHiding(!showBreakoutSignals);
DownSignal.SetHiding(!showBreakoutSignals);

Step 5: Squeeze Detection with Bollinger Band Compression

Identify squeeze conditions by analyzing the distance between the upper and lower Bollinger Bands. A squeeze is triggered when the bands come within a certain threshold, indicating compression.

def BBDistance = if UpperBollinger - LowerBollinger <= 10 then 1 else 0;
plot squeeze = if BBDistance then 50 else Double.nan;
squeeze.SetPaintingStrategy(PaintingStrategy.POINTS);
squeeze.SetLineWeight(4);
squeeze.SetDefaultColor(Color.Red);

Step 6: Incorporating Trend Lines

We utilize Mobius’s auto trend line code to add trend lines for RSI levels, giving you objective support and resistance areas within the indicator.

input TrendLineLength1 = 150;
input TrendLineLength2 = 80;
input TrendLineLength3 = 40;

def Inertia1 = InertiaAll(RSI, TrendLineLength1);
def Inertia2 = InertiaAll(RSI, TrendLineLength2);
def Inertia3 = InertiaAll(RSI, TrendLineLength3);

def TL_Bull1 = Inertia1 - (HighestAll(AbsValue(Inertia1 - RSI)) * 0.8);
def TL_Bear1 = Inertia1 + (HighestAll(AbsValue(Inertia1 - RSI)) * 0.8);

Conclusion

By following this tutorial, you’ve now built a powerful Dynamic RSI Indicator for ThinkOrSwim.

You can now incorporate these steps into your trading strategy and further refine the indicator by adjusting the parameters for your specific trading style. This tool not only gives a visual representation of overbought and oversold conditions but also layers on additional insights through trend lines and Bollinger Band squeezes.

Hope you found this tutorial helpful. Thanks for following along, and as always, good luck trading!