DIG Laguerre RSI & Filter
Ehlers Laguerre RSI Indicator
The Laguerre RSI indicator is a highly advanced version of the standard RSI indicator. The Laguerre RSI indicator was created by John Ehler and introduced in his book Cybernetic Analysis for Stocks and Futures.
The beauty of this indicator is that it is easy to use. You simply go long when the indicator crosses above the over-sold line (0.2) and short when the indicator crosses below the over-bought line (0.8).
AMZN 60 Min Chart:
Notice that when the Laguerre RSI crosses below the 0.8 over-bought level, we enter a nice short trade. This is repeated by two more trades, one long and one short.
The long trade is a relatively quick and weak trade that we might have wanted to avoid; remember this when reading the next part. Also notice that when the Laguerre RSI I is flat on the bottom we have a nice ongoing bearish move, and when it is flat on top we have a nice ongoing bullish move.
You can adjust the length of the Laguerre RSI to fit a specific asset and time frame by changing the gamma input. To lower false signals, the predefined value of gamma is set to 0.7.
How effective the is Laguerre RSI indicator?
The Laguerre RSI indicator is great, but it should be used with other indicators for a better and clearer understanding of the market direction.
We recommend using it with the Laguerre filter indicator, which is demonstrated below; it comes together with the Laguerre RSI indicator in one package.
What is the Laguerre Filter Indicator?
The Laguerre filter indicator is similar to a moving average. It is plotted on top of the chart. It has little lag and keeps tight to price movements. It is used as a setup to filter the signals from the Laguerre RSI indicator. Long trades should be entered only if, when the signal is received, the price is above the Laguerre filter indicator (below it for short trades).
AMZN 60 Min Chart:
Notice that the first short trade is supported by the filter and results in a nice winning trade. The long trade is not supported by the filter and that’s why we don’t go long there. Then, once more, we have a nice short trade that is supported by the filter.
Key Features :
- Adjustable gamma (Length).
- Laguerre RSI changes color according to its direction.