Alpha RSI
What is Alpha RSI?
RSI can be useful in identifying tops, bottoms, and reversals in the form of confirmation. The RSI topic can become a bit complex to understand but has been simplified to a few main concepts in the Alpha RSI indicator.
Most traders will use RSI looking for divergences which are opposite trends in price action and in RSI. Traders normally have to draw these divergences. The Alpha RSI indicator draws there divergences for you. An even better feature of the Alpha RSI is its ability to show bullish and bearish Momentum. Both the divergences and momentum features of the Alpha RSI are excellent for confirmation to our HTF/LTF & Alpha Trend setups!
RSI Momentum
RSI momentum changes are shown on the Alpha RSI with 3 lines that represent a normal RSI, a fast RSI, and a slow RSI. When the normal RSI line crosses over the other two lines it is indicting Bullish Momentum. When the Normal line is crossing under the other two lines it is indicating Bearish momentum.
Normal RSI line - Orange Line
Slow RSI line - Red Line
fast RSI line - Blue Line
Line Color | |
Orange Line | Normal RSI |
Red Line | Slow RSI |
Blue Line | Fast RSI |
The 3 RSI momentum indications are ESPECIALLY important when RSI is in overbought or oversold territory when the momentum change is signaled.
Bullish Cross + Confirmation of Squeeze Breakout (HTF Suite)
In the example below we see Alpha RSI being used for successful trade setups. However the one example on this chart that really works exceptional is the last one on the right that is actually being used as a Confirmation to our Squeeze Breakout setup that comes from the HTF Suite. Having both these setups signal at the same time give us much high probability of a successful trade. This is what we look for.
Notice on the chart when you follow the orange line how the momentum becomes bullish when it crosses ABOVE the other two lines. This is our signal for bullish momentum.
Note that after the orange RSI line crosses over the other two lines that a gap between said lines can appear. The larger the gap becomes the more powerful the RSI Momentum.
Bullish Cross + Confirmation of Reversal Bar
In the example below we take a look at how we use the RSI Momentum to confirm Reversal Bar setup trades that come from the Alpha Trend. This particular Reversal was confirmed by our two bar confirmation two days after the Reversal Bar, however if you used the RSI Momentum you would have gotten your confirmation on the same day as the reversal. You would have gotten into the trade a day earlier. A lot of times this can be the difference from a trader taking the trade, or emotionally feeling like they are too late and not entering. This Reversal has two confirmations from Trading Alpha Tools. This is the Trade John placed and tweeted on twitter.
Notice on the chart when you follow the orange line how momentum becomes bullish when the orange line crosses the other two lines. This is our signal for bullish momentum. Notice how wide the gap becomes indicating even more confidence and strength in the move.
Bearish Cross + Confirmation of Reversal Bar AND Bearish Squeeze Breakout
The example below would have saved you from more than a 50% LOSS off all your Bitcoin as price action crashed from $6500 down to $3195. The Alpha Trend Suite and HTF Suite gave you a lot of warning with an extremely high probability bearish setup using the Alpha RSI for confirmation. You can see the bearish yellow Reversal Bar printed at the SAME time that we saw Bearish RSI Momentum cross on the RSI. At the same time we ALSO had a shaded squeeze from our HTF Suite and a subsequent confirmed bearish breakout arrow! So the RSI confirmed both bearish setups and to all Trading Alpha members we got a big heads up before the crash to get out!
Again notice on this chart below how wide of a gap was made between the RSI lines. At its widest it indicated far more downside which is what we eventually happened.
RSI Divergence
RSI Divergences form when the trend of the price action is trending in one direction, while the RSI is trending in the exact opposite direction. This shows weakness and can often be an indication of a possible draw-down in price action ahead. However divergences can form and then disappear without it effecting price action...for this reason we use divergences as a confirmation indicator rather instead of being a long or short signal by itself. By using the RSI divergences as a confirmation tool to our HTF, and Alpha Trend setups we end up with a much higher probability that the trade will work out in our favor! Divergences are signaled with green or red line showing the divergence, as well as green or red label saying either "Bullish" or "Bearish".
Bullish Divergences Confirming both Squeeze Breakout & Reversal Bar
Below are some examples of RSI being used for confirmation on both bullish and bearish setups from the HTF and Alpha Trend. The first chart example signals bullish RSI divergence confirmation of our Squeeze Breakout setup from the HTF, and then later again signals the same confirmation for the Reversal Bar setup from the Alpha Trend Suite. The first setup ended up with a 35% gain from $9000 up to $12,000, while the second setup had a phenomenal gain of over 300% as it signaled a long from $10,000 that took us all the way up to $42,000 before the first red bars.
Bearish Divergence Confirming Topping Bar before CRASH!
Below we have an example where the Alpha Trend Printing a Topping signal (Circled in yellow), and at the same time printed a bearish divergence (Labeled "Bear" and clircled in yellow). You can see how price action had been rising while the RSI had been trending flat leading up to the red bear signal = this is the Bearish Divergence that is being located and signled for you. We have a high probability of a down move when these two indications signal at he same time ; hence a -45% crash followed shortly afterwards as green uptrend bars finally turned to red downtrend bars and headed much lower.
RSI Divergence line length
Alpha RSI Divergence line length is the specific distance of the dynamically generated RSI line from the start of the divergence to the end point. It identifies the amount of time that the divergence has been happening. These will have lookback periods the longer out you set the line length. In the Alpha RSI settings you will see 4 settings for divergence lengths, the default being the shortest with the fewest look back periods.
Default
Medium
Medium-Long
Long
pageHidden RSI Divergence
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