RSX (Relative Strength Extended)
The Relative Strength Extended (RSX) is an advanced momentum oscillator that builds upon traditional RSI concepts while incorporating additional smoothing techniques. It helps traders identify overbought and oversold conditions with improved signal quality and reduced noise compared to standard momentum indicators.
Formula
RSX uses a complex calculation involving:
- Double smoothed momentum
- Jurik moving average
- Adaptive noise reduction
- Dynamic period adjustments
Final RSX = Smoothed(100 * (Price - Lowest Low)/(Highest High - Lowest Low))
How RSX Works
The RSX indicator oscillates between 0 and 100, with readings above 70 typically indicating overbought conditions and readings below 30 suggesting oversold conditions. The indicator's advanced smoothing techniques help reduce whipsaws while maintaining responsiveness to significant price movements. It can be used for both trend following and counter-trend strategies.
Trading Strategies Using RSX
Strategy Examples
- Trade RSX crossovers of centerline (50 level)
- Use extreme readings (above 70/below 30) for reversals
- Look for RSX divergences with price
- Combine RSX with trend lines for confirmation
- Use RSX for exit timing in trending markets
Support and Resistance
- RSX levels can act as dynamic support/resistance
- Watch for price reactions at key RSX thresholds
- Use RSX convergence at major price levels
- Monitor RSX patterns at previous S/R tests
- Combine with price action for stronger signals
Trend Identification
- Rising RSX confirms uptrend strength
- Falling RSX validates downtrend momentum
- RSX slope indicates trend intensity
- Watch for trend changes at centerline crosses
- Use RSX range for trend classification
Advantages and Limitations
Advantages
- Reduced noise compared to traditional RSI
- Better signal quality in trending markets
- Effective for identifying reversals
- Adapts well to different market conditions
Limitations
- Can lag behind price in fast markets
- Complex calculation makes it harder to understand
- May still generate false signals in choppy markets
- Requires confirmation from other indicators
Best Practices When Using RSX
- Use multiple timeframes to confirm RSX signals
- Combine with other technical indicators for validation
- Wait for clear RSX divergences before taking counter-trend positions
- Monitor RSX during key support/resistance tests
- Consider overall market conditions when interpreting RSX readings
- Look for RSX confirmation on breakouts
- Track RSX patterns at major market turning points
- Document which RSX settings work best for your trading style
- Adjust RSX thresholds based on market volatility
- Regularly review and optimize your RSX-based strategies