ADX-Weighted RSI for Reducing Countertrend Signals

Summary

The document presents a variant of RSI that uses ADX to attenuate overbought and oversold readings when trend strength is rising. Its motivation is that classic RSI reversal signals can be unreliable in strong trends, while RSI is described as more useful in sideways or consolidating markets. The indicator keeps the familiar RSI interpretation and adjusts values toward the midpoint as ADX increases.

The described version applies linear attenuation between ADX values of 23 and 70, with a user-set weighting that controls its strength. When ADX is falling relative to ADXR, it leaves RSI unthrottled. The author also mentions alternative nonlinear attenuation curves, but does not present comparative tests or performance evidence. The indicator is explicitly described as a simple version that should be optimized for each market or timeframe, so its effectiveness is not established by the document.

Key ideas

• The indicator uses ADX strength to damp RSI extremes during strengthening trends.
• Its attenuation is linear between ADX values of 23 and 70.
• When ADX is falling relative to ADXR, the described logic leaves RSI unchanged.
• The weighting parameter controls damping and can also produce amplification or stronger squashing.
• The document provides no comparative performance tests and advises market- or timeframe-specific optimization.

Tags

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