What is so special about this RSI?
The first thing you’re going to notice with this indicator is how smooth it is. Unlike the regular RSI that picks up significant market noise, this version filters much of that clutter and gives you clearer signals. You’ll also see instead of the standard 70 and 30 lines, this RSI uses dynamic purple bands that adapt with the price.
H – Understanding the RSI
The “H” in RSI stands for “Hanning,” which is the type of window the indicator uses. But what does that mean?
Window Length and Type
The term “window,” in this context, refers to the portion of historical price data under consideration from the indicator. The window length defines how many points are used; the type of window determines how the points are weighted.
Hanning Window
Unlike the flat, no-slope rectangle used in the traditional RSI, the Hanning window is curved and smooth. It serves to give a more subtle vision of the price movements and allows the RSI to be more responsive without responding to every insignificant fluctuation. This makes the behavior of the indicator smoother and helps to reduce noise; thus, making it easier to trace considerable market movements.
The Tradeoff: Smoother, but with Lag
Smooth indications can be had at the cost of slight delay in the generation of the signals. The trick is to get a balance-enough to filter out noise but not so much it becomes unresponsive. While increasing the length of the traditional RSI may not have that effect, the Hanning window does provide that unique behavior due to weighting of the data differently.
The Adjustable Purple Bands
Now, regarding purple bands: bands of variable length serve as areas of overbuying/overselling. They are dynamic, which means they move with the price action in real time and make this way of finding the potential reversal of a trend more flexible.
Long vs. Short Lengths
Longer Lengths: If you set the bands to a longer length—for example 500—they will act more like the overbought and oversold levels of the traditional RSI. They will remain near the upper and lower boundaries of the indicator.
Shorter Lengths: Through these bands, the movement is in a more dynamic touch accompanying the indicator, while demonstrating quicker price movements, as the trader can get access to more frequent buy or sell signals.
Optimal Trading Length
The length choice depends on the trading strategy. A 14-length standard might work for some, but you can try longer lengths to see how well the indicator tracks the market with the least lag.
Example: The above with length 200 will work to smooth out the real movement of the indicator through your ups and downs of any market, only lagged a little. This format is very useful in heavy structured markets that are not too reactionary to short-term noise.
Trading Using the Bands
The bands help you identify potential entry and exit points. When the price moves into or outside of these bands, a reversal could be likely. Furthermore, if you want more confirmation, you can wait for the color change of the indicator. If it is not changing fast enough, you might lower the length or base the trades purely on the indicator entering the bands.
Origin of Indicator
This special RSI was created by John Ehlers, and I’ve added the purple bands for even more flexibility. If you want to dive deeper into the specifics of how this version works, check out the white paper linked in the description.
Try It Out
You can start using this customized RSI on TradingView with the link in the description. If you don’t have a TradingView account, then it is free and easy to get signed up. If you want access to more advanced indicators, head over to the Quantifica Patreon to get exclusive access to our full library of premium indicators.