Theory:
In his insightful piece, "RocketRSI—A Solid Propellant For Your Rocket Science Trading," author John Ehlers brings a fresh perspective to the classic RSI indicator, originally crafted by J. Welles Wilder. Ehlers proposes a revamped version of RSI that focuses on a straightforward accumulation of upward and downward closes instead of the traditional averages. He then applies a Fisher transform, resulting in statistically significant spikes that pinpoint cyclic turning points with remarkable accuracy.
Simply put, this version is like an RSI that smooths momentum using a two-pole super smoother. While the name may raise eyebrows, it certainly warrants a revisit since it operates similarly to the original, allowing us to explore its true capabilities.
This version:
It’s calculated in the original manner, delivering identical results while introducing some handy options:
- You can select the price (the original only uses closing prices).
- You can choose to calculate the Fisher transform of the "rocket" RSI or view the "rocket" RSI on its own.
- There are three color options available:
- Color changes based on slope changes.
- Color changes when crossing the zero line.
- Color changes upon crossing specific levels (used as entry triggers in the original article).
Usage:
When it comes to using this indicator, experimentation is key. You might find interesting settings that work for you, as shown in the example picture below. Once you’ve got it set up, the color changes can serve as your trading signals.
