Version: 1.0 (Current)

Momentum Indicators

Momentum indicators measure the speed and strength of price movements, helping traders identify overbought/oversold conditions, divergences, and potential reversals.

Relative Strength Index (RSI)

Calculation

RSI measures the magnitude of recent price changes to evaluate overbought or oversold conditions.

Formula:

RSI = 100 - (100 / (1 + RS))

Where:
RS = Average Gain / Average Loss

Average Gain = Sum of Gains over n periods / n
Average Loss = Sum of Losses over n periods / n

Step-by-Step Example (14-period RSI):

Day 1-14: Calculate initial averages
  Gains: 2, 0, 1, 3, 0, 2, 1, 0, 0, 1, 2, 0, 1, 0
  Losses: 0, 1, 0, 0, 2, 0, 0, 1, 1, 0, 0, 1, 0, 1
  
  Avg Gain = 13 / 14 = 0.93
  Avg Loss = 7 / 14 = 0.50
  
  RS = 0.93 / 0.50 = 1.86
  RSI = 100 - (100 / (1 + 1.86)) = 65.03

Day 15+: Use smoothed averages
  Avg Gain = ((Previous Avg Gain × 13) + Current Gain) / 14
  Avg Loss = ((Previous Avg Loss × 13) + Current Loss) / 14

Characteristics

Range: 0 to 100
Overbought: > 70 (traditional), > 80 (conservative)
Oversold: < 30 (traditional), < 20 (conservative)
Neutral: 40-60
Period: 14 (standard), 7 (fast), 21 (slow)

Interpretation Levels

RSI Value	Condition	Action
0-20	Extremely Oversold	Strong buy signal
20-30	Oversold	Buy signal
30-40	Weak	Caution
40-60	Neutral	No clear signal
60-70	Strong	Caution
70-80	Overbought	Sell signal
80-100	Extremely Overbought	Strong sell signal

Usage Examples

Oversold Condition:

{
  "type": "indicator_value",
  "indicator": "rsi",
  "period": 14,
  "comparison": "below",
  "value": 30
}
// RSI < 30 = oversold, potential buy

Overbought Condition:

{
  "type": "indicator_value",
  "indicator": "rsi",
  "period": 14,
  "comparison": "above",
  "value": 70
}
// RSI > 70 = overbought, potential sell

RSI Crosses Above 50 (Bullish):

{
  "type": "indicator_value",
  "indicator": "rsi",
  "period": 14,
  "comparison": "crosses_above",
  "value": 50
}
// RSI crosses above 50 = momentum shift to bullish

RSI Divergence

Bullish Divergence:

Price makes lower low
RSI makes higher low
Signal: Potential reversal to upside

Bearish Divergence:

Price makes higher high
RSI makes lower high
Signal: Potential reversal to downside

Example Strategy:

{
  "entryConditions": {
    "long": {
      "logicalOperator": "AND",
      "conditions": [
        {
          "type": "indicator_value",
          "indicator": "rsi",
          "period": 14,
          "comparison": "below",
          "value": 30
        },
        {
          "type": "indicator_value",
          "indicator": "rsi",
          "period": 14,
          "comparison": "crosses_above",
          "value": 30
        }
      ]
    }
  }
}
// Enter when RSI crosses back above 30 from oversold

Stochastic Oscillator

Calculation

Stochastic compares the closing price to the price range over a period, showing where the close is relative to the high-low range.

Formula:

%K = ((Close - Lowest Low) / (Highest High - Lowest Low)) × 100

%D = SMA of %K (typically 3-period)

Where:
- Close = Current closing price
- Lowest Low = Lowest price over n periods
- Highest High = Highest price over n periods

Example (14-period Stochastic):

Period: 14 days
Highest High: 120
Lowest Low: 100
Current Close: 115

%K = ((115 - 100) / (120 - 100)) × 100
   = (15 / 20) × 100
   = 75

%D = 3-period SMA of %K values

Characteristics

Range: 0 to 100
Overbought: > 80
Oversold: < 20
Standard Settings: 14, 3, 3 (K period, K slowing, D period)
Fast Stochastic: No smoothing
Slow Stochastic: Smoothed %K

Interpretation

Stochastic Value	Condition	Signal
0-20	Oversold	Potential buy
20-80	Neutral	No clear signal
80-100	Overbought	Potential sell

Usage Examples

Oversold Crossover (Bullish):

{
  "type": "indicator_value",
  "indicator": "stochastic_k",
  "period": 14,
  "comparison": "crosses_above",
  "value": 20
}
// %K crosses above 20 from oversold = buy signal

Overbought Crossover (Bearish):

{
  "type": "indicator_value",
  "indicator": "stochastic_k",
  "period": 14,
  "comparison": "crosses_below",
  "value": 80
}
// %K crosses below 80 from overbought = sell signal

%K Crosses %D (Signal Line Crossover):

{
  "indicator1": "stochastic_k",
  "period1": 14,
  "indicator2": "stochastic_d",
  "period2": 3,
  "comparison": "crosses_above"
}
// %K crosses above %D = bullish signal

Stochastic Strategies

1. Oversold Bounce:

{
  "entryConditions": {
    "long": {
      "logicalOperator": "AND",
      "conditions": [
        {
          "type": "indicator_value",
          "indicator": "stochastic_k",
          "period": 14,
          "comparison": "below",
          "value": 20
        },
        {
          "indicator1": "stochastic_k",
          "period1": 14,
          "indicator2": "stochastic_d",
          "period2": 3,
          "comparison": "crosses_above"
        }
      ]
    }
  }
}
// Enter when %K crosses above %D in oversold zone

2. Trend Following with Stochastic:

{
  "entryConditions": {
    "long": {
      "logicalOperator": "AND",
      "conditions": [
        {
          "type": "price_indicator",
          "price": "close",
          "indicator": "ema",
          "period": 50,
          "comparison": "above"
        },
        {
          "type": "indicator_value",
          "indicator": "stochastic_k",
          "period": 14,
          "comparison": "crosses_above",
          "value": 50
        }
      ]
    }
  }
}
// Uptrend + Stochastic crosses above 50

Commodity Channel Index (CCI)

Calculation

CCI measures the deviation of price from its statistical average, identifying cyclical trends.

Formula:

CCI = (Typical Price - SMA of Typical Price) / (0.015 × Mean Deviation)

Where:
Typical Price = (High + Low + Close) / 3
Mean Deviation = Average of |Typical Price - SMA|

Example (20-period CCI):

Day 1: TP = (110 + 105 + 108) / 3 = 107.67
Day 2: TP = (112 + 107 + 110) / 3 = 109.67
...
Day 20: TP = (115 + 110 + 113) / 3 = 112.67

SMA of TP (20 periods) = 108.50
Current TP = 112.67

Mean Deviation = 2.30

CCI = (112.67 - 108.50) / (0.015 × 2.30)
    = 4.17 / 0.0345
    = 120.87

Characteristics

Range: Unbounded (typically -300 to +300)
Overbought: > +100
Oversold: < -100
Extreme Overbought: > +200
Extreme Oversold: < -200
Period: 20 (standard), 14 (faster)

Interpretation

CCI Value	Condition	Signal
< -200	Extremely Oversold	Strong buy
-200 to -100	Oversold	Buy signal
-100 to +100	Neutral	No clear signal
+100 to +200	Overbought	Sell signal
> +200	Extremely Overbought	Strong sell

Usage Examples

Oversold Reversal:

{
  "type": "indicator_value",
  "indicator": "cci",
  "period": 20,
  "comparison": "crosses_above",
  "value": -100
}
// CCI crosses above -100 = oversold reversal

Overbought Reversal:

{
  "type": "indicator_value",
  "indicator": "cci",
  "period": 20,
  "comparison": "crosses_below",
  "value": 100
}
// CCI crosses below 100 = overbought reversal

Trend Strength:

{
  "type": "indicator_value",
  "indicator": "cci",
  "period": 20,
  "comparison": "above",
  "value": 100
}
// CCI > 100 = strong uptrend

CCI Strategies

1. CCI Reversal:

{
  "entryConditions": {
    "long": {
      "logicalOperator": "AND",
      "conditions": [
        {
          "type": "indicator_value",
          "indicator": "cci",
          "period": 20,
          "comparison": "below",
          "value": -100
        },
        {
          "type": "indicator_value",
          "indicator": "cci",
          "period": 20,
          "comparison": "crosses_above",
          "value": -100
        }
      ]
    }
  }
}
// Enter when CCI crosses back above -100

2. CCI Trend Following:

{
  "entryConditions": {
    "long": {
      "conditions": [
        {
          "type": "indicator_value",
          "indicator": "cci",
          "period": 20,
          "comparison": "crosses_above",
          "value": 0
        }
      ]
    }
  },
  "exitConditions": {
    "stopLoss": {
      "type": "percentage",
      "value": 2
    },
    "takeProfit": {
      "type": "indicator",
      "indicator": "cci",
      "period": 20,
      "comparison": "crosses_below",
      "value": 0
    }
  }
}
// Enter when CCI > 0, exit when CCI < 0

Comparison: RSI vs Stochastic vs CCI

Feature	RSI	Stochastic	CCI
Range	0-100	0-100	Unbounded
Calculation	Relative strength	Price position in range	Deviation from average
Sensitivity	Medium	High	Medium
Best For	Divergences, reversals	Overbought/oversold	Trend strength
Lag	Low	Low	Low
False Signals	Medium	High	Medium

Momentum Indicator Combinations

1. RSI + Stochastic Confirmation

Setup:

RSI(14) for trend
Stochastic(14,3,3) for timing

Entry (Long):

RSI > 50 (bullish momentum)
Stochastic %K crosses above %D
Stochastic in oversold zone (<20)

{
  "entryConditions": {
    "long": {
      "logicalOperator": "AND",
      "conditions": [
        {
          "type": "indicator_value",
          "indicator": "rsi",
          "period": 14,
          "comparison": "above",
          "value": 50
        },
        {
          "type": "indicator_value",
          "indicator": "stochastic_k",
          "period": 14,
          "comparison": "below",
          "value": 20
        },
        {
          "indicator1": "stochastic_k",
          "period1": 14,
          "indicator2": "stochastic_d",
          "period2": 3,
          "comparison": "crosses_above"
        }
      ]
    }
  }
}

2. RSI + CCI Double Confirmation

Setup:

RSI(14) for momentum
CCI(20) for trend strength

Entry (Long):

RSI crosses above 50
CCI > 0

{
  "entryConditions": {
    "long": {
      "logicalOperator": "AND",
      "conditions": [
        {
          "type": "indicator_value",
          "indicator": "rsi",
          "period": 14,
          "comparison": "crosses_above",
          "value": 50
        },
        {
          "type": "indicator_value",
          "indicator": "cci",
          "period": 20,
          "comparison": "above",
          "value": 0
        }
      ]
    }
  }
}

Divergence Detection

Bullish Divergence (All Indicators)

Pattern:

Price makes lower low
Indicator makes higher low
Signal: Potential reversal to upside

How to Identify:

Compare last 2-3 swing lows
Price: Lower low
RSI/Stochastic/CCI: Higher low

Bearish Divergence (All Indicators)

Pattern:

Price makes higher high
Indicator makes lower high
Signal: Potential reversal to downside

How to Identify:

Compare last 2-3 swing highs
Price: Higher high
RSI/Stochastic/CCI: Lower high

Best Practices

Do's

✅ Use RSI for divergence detection
✅ Use Stochastic for precise entry timing
✅ Use CCI for trend strength confirmation
✅ Combine with trend indicators (EMA, MACD)
✅ Wait for confirmation before entering
✅ Adjust overbought/oversold levels for trending markets

Don'ts

❌ Trade against strong trends based on overbought/oversold alone
❌ Use momentum indicators as sole entry criteria
❌ Ignore price action in favor of indicators
❌ Over-optimize indicator periods
❌ Use all three momentum indicators together (redundant)

Common Pitfalls

1. Overbought Can Stay Overbought

Problem: RSI > 70 doesn't mean immediate reversal Solution: Wait for RSI to cross back below 70 or use trend filter

2. False Signals in Strong Trends

Problem: Oversold signals in downtrends lead to losses Solution: Only trade with the trend (RSI > 50 for longs)

3. Whipsaws in Ranging Markets

Problem: Multiple false crossovers Solution: Use ADX to confirm trend strength before trading

Indicators Overview - All available indicators
Trend Indicators - MACD, ADX, Parabolic SAR
How to Implement RSI Conditions - Practical guide
RSI Divergence Strategy Tutorial - Step-by-step implementation

Relative Strength Index (RSI)​

Calculation​

Characteristics​

Interpretation Levels​

Usage Examples​

RSI Divergence​

Stochastic Oscillator​

Calculation​

Characteristics​

Interpretation​

Usage Examples​

Stochastic Strategies​

Commodity Channel Index (CCI)​

Calculation​

Characteristics​

Interpretation​

Usage Examples​

CCI Strategies​

Comparison: RSI vs Stochastic vs CCI​

Momentum Indicator Combinations​

1. RSI + Stochastic Confirmation​

2. RSI + CCI Double Confirmation​

Divergence Detection​

Bullish Divergence (All Indicators)​

Bearish Divergence (All Indicators)​

Best Practices​

Do's​

Don'ts​

Common Pitfalls​

1. Overbought Can Stay Overbought​

2. False Signals in Strong Trends​

3. Whipsaws in Ranging Markets​

Related Documentation​

Relative Strength Index (RSI)

Calculation

Characteristics

Interpretation Levels

Usage Examples

RSI Divergence

Stochastic Oscillator

Calculation

Characteristics

Interpretation

Usage Examples

Stochastic Strategies

Commodity Channel Index (CCI)

Calculation

Characteristics

Interpretation

Usage Examples

CCI Strategies

Comparison: RSI vs Stochastic vs CCI

Momentum Indicator Combinations

1. RSI + Stochastic Confirmation

2. RSI + CCI Double Confirmation

Divergence Detection

Bullish Divergence (All Indicators)

Bearish Divergence (All Indicators)

Best Practices

Do's

Don'ts

Common Pitfalls

1. Overbought Can Stay Overbought

2. False Signals in Strong Trends

3. Whipsaws in Ranging Markets

Related Documentation