Ehlers Laguerre RSI Indicator

Ehlers Laguerre RSI is a much more advanced version of the basic RSI indicator. It was created by John Ehler and documented in his book entitled 'Cybernetic Analysis For Stocks And Futures'.

It's very simple to use. You simply go long when the indicator moves above the 20% mark (usually marked as 0.2 on the charts) and go short when the indicator move below 80% (0.8).

You can adjust the gamma setting to suit the currency and time frame that you are trading to find the optimal value. The default setting is 0.5, which is quite an aggressive setting because it will give you lots of possible set-ups but if you want to eliminate some of these false signals you can increase the gamma setting anywhere up to around 0.85. I personally have found 0.65 to be the best setting in general.

So how useful is Ehlers Laguerre RSI indicator?

Well I have mixed feelings about this indicator. I don't think the Laguerre RSI indicator is anywhere near effective enough to use in isolation, but if you combine it with one or two other indicators, then it can be very useful.

It also appears to be quite an effective indicator to use when the price of the currency pair is trading close to pivot points and support / resistance lines.

For instance if the price is currently trading close to the Support2 line, and the Laguerre RSI indicator crosses above 0.2, then this would be a good indication that a reversal is about to take place.

To demonstrate this point, let me show you a chart of the GBP/USD for today. You will see below that the price tested the first line of support (Support1) early this morning, but after it failed to break through and possibly test the Support 2 line, the Laguerre RSI rose above 0.2 and the price quickly headed back to it's initial pivot point (and straight on to the Resistance1 line in fact).

So overall I think the Ehlers Laguerre RSI indicator can be useful in certain circumstances.