Combining Smoothed Price and Volume RSI for Directional Signals

Summary

This strategy computes separate relative strength indexes for price and trading volume, smooths each with a moving average, and uses the smoothed price RSI to set direction. A rising average signals a long position, while a falling average signals a short; the volume-based average is intended as context for assessing whether market pressure supports or weakens the move. The article illustrates this with cases where rising prices alongside declining volume may warn of weakening bullish strength, and falling prices alongside rising volume may support holding a short.

The example uses short RSI and smoothing lookbacks and includes a roughly month-long Bitcoin futures backtest configuration, but the document provides no reported results to substantiate its claims of improved accuracy over a single RSI. It also acknowledges vulnerability to indicator divergence and choppy markets, where frequent changes in the smoothed RSI can produce unnecessary trades. Proposed safeguards include parameter testing, overbought or oversold filters, stop losses, and other technical signals; these are suggestions rather than evaluated features of the described rules.

Key ideas

• The method calculates RSI separately for price and volume, then smooths both readings with moving averages.
• The direction of the smoothed price RSI determines long or short signals.
• The smoothed volume RSI is used as context for judging whether buying or selling pressure may be changing.
• Divergence between price and volume and sideways markets can make signals unreliable or generate excess trades.
• The backtest configuration is provided without performance results, and the proposed safeguards are not shown as tested improvements.

Tags

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