Ultimate Strength Index

This indicator implements the Ultimate Strength Index (USI) indicator, introduced by John Ehlers in his article titled "Ultimate Strength Index (USI)" from the November 2024 edition of TASC's Traders' Tips. The USI is a modified version of Wilder's original Relative Strength Index (RSI) that incorporates Ehlers' UltimateSmoother lowpass filter to produce an output with significantly reduced lag.
Manufacturer: nt8indicators
SKU: USI
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Key Features of the Ultimate Strength Index (USI):

  1. Formula: The USI uses both price gains and losses, much like the RSI, but it incorporates a multi-period smoothing technique. It takes the following into account:

    • The difference between the current closing price and the previous closing price.
    • The magnitude of price changes over multiple periods (usually 14, but I personnaly use 112).
  2. Range: Like the RSI, the USI typically fluctuates between 1 and -1.

    • A value above 0 indicates an overbought market (potential sell signal).
    • A value below 0 suggests an oversold market (potential buy signal).
    • It can also be used to spot divergences that suggest potential trend changes.
  3. Advantages Over RSI: While the RSI is sensitive to price changes, the USI smooths out the price fluctuations further, offering a more robust measure of the strength of a trend, making it more reliable in detecting market turns and trend momentum shifts.

  4. Usage: Traders use the USI to:

    • Identify the strength of price trends.
    • Spot trend reversals by looking for overbought or oversold conditions.
    • Gauge potential buying or selling opportunities when price movements become extreme.
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