Theory:
The Relative Strength Index (RSI) is already a normalized indicator, which might make the idea of a normalized RSI seem a bit odd. However, there's a catch: the RSI tends to flatten out as we extend the calculation period. This can make it less effective for trading at key levels, especially if we push the calculation period beyond the commonly recommended 8. To mitigate this issue and maintain the effectiveness of the RSI for identifying significant levels, we can apply a kind of 'raw stochastic' normalization (min/max) in this version.
Usage:
Just like any standard RSI, but with one key difference—it’s more responsive to fixed level trading. This makes it a handy tool for traders looking to refine their strategies.
PS:
In the example below, you can see a direct comparison between the normalized RSI (the upper colored line) and the standard RSI (the lower gray line), both using the same parameters and a period of 32. Notice how the normalized RSI reacts more dynamically!
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