Filtering RSI into Upper, Lower, and Neutral States
Summary
This note describes an RSI filter that reduces the indicator to three states. It marks an upper state after RSI clearly breaks above 70 and carries that state forward from the previous bar; it marks a lower state after a clear break below 30 and likewise preserves the state. A neutral state is assigned when RSI lies between 40 and 60. The resulting labels are meant to make RSI readings easier to interpret alongside other indicators.
The author suggests using a shorter RSI period, noting that longer periods reach the 30 and 70 thresholds less often and may therefore produce fewer state changes. The filter can also be applied to other indicators, with momentum mentioned as a possible combination. No backtest, market examples, or performance evidence is provided, and the note does not fully explain how values between the threshold and neutral zones are handled. It presents an indicator-processing idea rather than a standalone entry, exit, or risk-management strategy.
Key ideas
- The filter classifies RSI as upper after a break above 70 and lower after a break below 30.\nIt carries the prior upper or lower state forward across subsequent bars.\nValues from 40 to 60 are labeled neutral.\nThe author favors shorter RSI periods because they may reach the outer thresholds more often.\nThe filter may also be applied to indicators such as momentum, but no performance evidence is given.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.