Let’s see how to create our smoothed RSI indicator by using a Moving Average with Easylanguage.
For this example, we will use an RSI, and we will go to create two indicators.
The first is a classic indicator and be placed below the graph. Another indicator is a PaintPar that will color the candles according to the trend.
The yellow line is the normal ATR while the red line is the smooth ATR through its 10-period average (2-weeks).
The normal RSI is very fast and more susceptible to random market movements.
How to create the smoothed RSI:
The formula in Easylanguage to “smooth” and make a series of data slower as the RSI line is this:
RSI_VALUE = RSI(Price, Length);
RSI_SMOOTH = Average (RSI_VALUE, Smooth);
This indicator is very useful as a trend filter.
We then build a PaintBar indicator that will color the candles green when the ATR is above 50 and red when the ATR is below.
The PaintBars available on TradeStation and Multicharts are very useful to get an immediate idea of the current trend.
If we compare the PaintBar calculated with the standard RSI length, we see that have fewer signal changes.
Some traders use the RSI crossing above and below 50 to open long and short positions, but from the tests carried out, it is not a robust strategy.
It is, therefore, preferable to use this indicator exclusively to identify the primary trend.
INVESTOPEDIA: Relative Strenght Index
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