RSI-Volume Momentum Signal Score

RSI-Volume Momentum Signal Score

Description

The RSI-Volume Momentum Signal Score is a predictive technical indicator designed to identify bullish and bearish momentum shifts by combining volume-based momentum with the Relative Strength Index (RSI). It generates a Signal Score derived from:

• The divergence between short-term and long-term volume (Volume Oscillator), and
• RSI positioning relative to a user-defined threshold.

This hybrid approach helps traders detect early signs of price movement based on volume surges and overbought/oversold conditions.

The Signal Score is computed as follows:

Signal Score = Volume Momentum x RSI Divergence Factor

Volume Momentum = tanh ((Volume Oscillator value (vo) – Volume Threshold)/Scaling Factor)
RSI Divergence Factor = ((RSI Threshold – RSI Period)/Scaling Factor)

Or,

Signal Score = tanh((vo - voThreshold) / scalingFactor) * ((rsiThreshold - rsi) / scalingFactor)

The logic of this formula are as follows:

• If Volume Oscillator >= Volume Threshold and RSI <= RSI Threshold: Bullish Signal (+1 x Scaling Factor)
• If Volume Oscillator >= Volume Threshold and RSI >= (100 – RSI Threshold): Bearish Signal (-1 x Scaling Factor)
• Otherwise: Neutral (0)

The tanh function provides the normalization process. It ensures that the final signal score is bounded between -1 and 1, increases sensitivity to early changes in volume patterns based on RSI conditions, and prevent sudden jumps in signals ensuring smooth and continuous signal line.

Input Fields

The input fields allow users to customize the behavior of the indicator based on their trading strategy:

Short-Term Volume MA
- Default: `2`
- Description: The period for the short-term moving average of volume.
- Purpose: Captures short-term volume trends.

Long-Term Volume MA)
- Default: `10`
- Description: The period for the long-term moving average of volume.
- Purpose: Captures long-term volume trends for comparison with the short-term trend.

RSI Period)
- Default: `3`
- Description: The period for calculating the RSI.
- Purpose: Measures the relative strength of price movements over the specified period.

Volume Oscillator Threshold
- Default: `70`
- Description: The threshold for the Volume Oscillator to determine significant volume momentum.
- Purpose: Filters out weak volume signals.

RSI Threshold
- Default: `25`
- Description: The RSI level used to identify overbought or oversold conditions.
- Purpose: Helps detect potential reversals in price momentum.

Signal Scaling Factor
- Default: `10`
- Description: A multiplier for the signal score.
- Purpose: Adjusts the magnitude of the signal score for better visualization.

How To Use It for Trading:

Upcoming Bullish Signal: Signal line turns from Gray to Green or from Green to Gray
Upcoming Bearish Signal: Signal line turns from Gray to Red or from Red to Gray

Note: The price that corresponds to the transition of Signal line from Gray to Green or Red and vise versa is the signal price for upcoming bullish or bearish signal.

The signal score dynamically adjusts based on volume and RSI thresholds, making it adaptable to various market conditions, and this is what makes the indicator unique from other traditional indicators.

Unique Features

Unlike traditional indicators, this indicator combines two different dimensions—volume trends and RSI divergence—for more comprehensive signal generation. The use of tanh() to scale and smooth the signal is a mathematically elegant way to manage signal noise and highlight genuine trends. Traders can tune the scaling factor and thresholds to adapt the indicator for scalping, swing trading, or longer-term investing.