An introduction to Adaptive RSI

Adaptive RSI is a concept derived from RSI which considers price as it’s first anchor point. Where RSI is a momentum indicator that plots below the chart, the adaptive RSI plots on the chart along with price. Adaptive RSI considers price and a modification to RSI.

The basic difference between RSI and Adaptive RSI is the way tehy get plotted. One is Underlay and other is Overlay indicator. Both the indicators share information about momentum. Adaptive RSI gives further detail on trend along with momentum.

Adaptive RSI is an attempt to give info about momentum based on price.

Uses of Adaptive RSI

When plotted on the charts, Adaptive RSI plots a single line that tells about the trend of the price and its momentum. Only based on this line, there are 3 uses of Adaptive RSI:

• Line is rising: This shows the trend is bullish and the momentum is picking up

• Line is falling: This shows the trend is bearish and the momentum is picking up

• Line is flat: This shows that there is neither trend nor momentum

Although this indicator plots a line that can be used as a trend indicator, context is still missing. This context can be added by plotting an average of the adaptive RSI.

Observe in the example below that when the indicator was flat from Aug 2023 to Nov 2023, the price was sideways as well without any momentum. Subsequently the line was rising and therefore the trend and momentum was rising as well.

Adding context to Adaptive RSI

The Adaptive RSI is calculated for 14 period whereas the average line of Adaptive RSI is calculated for 9 period. This is because the average would be more reactive to recent changes. When the average line is added, there is context to the indicator. The use cases of the Adaptive RSI line with the Average line of Adaptive RSI are:

• If Adaptive RSI is rising and above it’s average, it shows bullish momentum and bullish trend.

• If Adaptive RSI is falling and below it’s average, it shows bearish momentum and bearish trend,

• When the Adaptive RSI crosses the average line from below, it is a bullish crossover and shows a start of bullish momentum.

• When the Adaptive RSI line crosses the average line from above, it is a bearish crossover and shows a start of bearish momentum.

A trend following indicator like MAST can be added to give a clearer picture of the trend on the chart.

Observe the chart below, the price entered into a bearish trend when it moved below the MAST. At the same time, Adaptive RSI and its average gave a bearish crossover.

Observe the chart below, the price entered into a bullish trend when the price rose above MAST. At the same time, the Adaptive RSI and its average gave a bullish crossover; almost before the MAST showed a bullish trend.

This is a relatively lesser-known indicator. To use this indicator, the trader must practice it on many charts. I have shown further examples in the YouTube video linked below. Do check it out!!