The technical indicator created by John F. Ehlers is a modified version of the Relative Strength Index (RSI). For the first time this indicator was published by John F. Ehlers in Cybernetic Analysis For Stocks And Futures.
Formula
L0:=((1-g)*C) + (g*PREV);
L1:=(-g*L0) + Ref(L0,-1) + (g*PREV);
L2:=(-g*L1) + Ref(L1,-1) + (g*PREV);
L3:=(-g*L2) + Ref(L2,-1) + (g*PREV);
cu:= If(L0 > L1, L0-L1,0) + If(L1 > L2, L1-L2,0) + If(L2 > L3, L2-L3,0);
cd:= If(L0 < L1, L1-L0,0) + If(L1 < L2, L2-L1,0) + If(L2 < L3, L3-L2,0).
Trading use
As in case of many other oscillators, the main method of this indicator use is opening of buy orders after the level of indicator crosses above the level of 0.15 and opening of sell orders after the indicator crosses below the level of 0.75.
The major parameter of the RSI Laguerre indicator for MetaTrader is the factor gamma which equals 0.7 by default. It is important to note when the value which is less than this level (for instance, 0.5) is used, the indicator suggests rather aggressive trading with big number of trading signals, which nagatively influences the outcomes. High values of the indicator’s factor (more than 0.85) are unadvisable as overvaluation of the parameter may lead to delays in the work of the indicator.
The relevant distinguishing characteristic of the technical indicator RSI Laguerre is the situation when the indicator line takes minimal or maximal value moving strictly in horizontal way; it means powerful directed movement. Thus, if the indicator equals 1 and moves horizontally, strong trend movement, which is pointed up, prevails on the market. If the indicator equals zero and moves horizontally, then one should open sell deals in the developing downward movement.
Parameters of InstaForex RSI Laguerre indicator
gamma = 0.7
