Asymmetrical RSI

Key Characteristics and Calculation

Unlike the traditional RSI, which calculates its values based on fixed periods of gains and losses, the ARSI dynamically adapts by calculating separate adaptive smoothing factors for upward and downward price changes. This asymmetrical approach allows it to respond differently to bullish and bearish conditions based on recent price movement patterns, leading to smoother signals without being overly reactive to every small price fluctuation.

ARSI Calculation Steps

1. Rate of Change (ROC): The ARSI typically starts with a Rate of Change (ROC) calculation to determine the magnitude of price changes.

2. Up and Down Counts: It calculates the number of bars within a set period where prices increased (upCount) and decreased (downCount). These values help determine separate smoothing factors for rising and falling prices.

3. Adaptive Smoothing: Using upCount and downCount, adaptive smoothing factors are computed. For instance:

   • upAlpha = 1 / upCount (if upCount > 0).
   • downAlpha = 1 / downCount (if downCount > 0).

4. Weighted Summation: The ARSI then calculates upSum and downSum using weighted sums of the ROC, applying the adaptive smoothing factors separately to up and down movements.

5. Final ARSI Value:

   • The ARSI value is derived from 100 * upSum / (upSum + downSum), similar to the traditional RSI scale of 0 to 100.
   • Interpretation:
     • ARSI > 70 is often considered overbought.
     • ARSI < 30 is often considered oversold.

Benefits of ARSI

• Adaptive Responsiveness: It reacts more effectively to recent price action because it adapts to the strength of trends.
• Smoothing: ARSI is less affected by rapid oscillations or noise, allowing clearer and potentially earlier signals in trend changes.
• Asymmetry: By treating up and down moves separately, it more accurately reflects market behavior under different conditions.

Use Cases

• ARSI is often used in trend-following strategies, where detecting the direction and strength of a trend early can be beneficial.
• Breakout Detection: The ARSI may help identify overbought or oversold conditions more sensitively, potentially flagging breakout levels or trend reversals.

The ARSI can be a valuable tool for traders seeking a dynamic and adaptive RSI that’s less prone to false signals in choppy markets.