Adaptive DMI with Smoothed RSX and Floating Signal Levels

Summary

This indicator description presents a modified Dynamic Momentum Index (DMI), an oscillator intended to identify overbought or oversold conditions. The conventional DMI varies its lookback period with volatility, unlike the RSI's usual fixed lookback. In this adaptation, RSX replaces RSI to produce a smoother calculation, and standard deviation is used to adapt the RSX calculation. The method also replaces fixed overbought and oversold thresholds with floating levels.

The levels differ from discontinued signal lines: they are not constrained to oscillate around a central value. The description proposes reading changes in the indicator's color as signals, with color changes triggered by a change in slope, a crossing of an outer level, or a crossing of a middle line. That middle line is the average of the upper and lower floating levels and acts as a reference level. The excerpt explains the construction and possible signal triggers, but provides no parameter settings, performance tests, or guidance on false signals and market conditions.

Key ideas

• The conventional Dynamic Momentum Index varies its lookback period with volatility, unlike a fixed-period RSI.
• This adaptation uses RSX for smoother calculations and standard deviation to adjust its behavior.
• Floating thresholds replace fixed overbought and oversold levels.
• Signals may be based on slope changes or crossings of outer or middle levels.
• The middle reference is calculated from the average of the upper and lower floating levels.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.