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This interesting filtered version of the relative strength index (RSI) was introduced by trader John F. Ehlers in his 2004 book "Cybernetic Analysis for Stocks and Futures". Laguerre comes from Laguerre filtering. Laguerre filtering is a technique used to reduce noise in digital signal processing. Ehler applies Laguerre filtering to market price series. The Laguerre RSI works in the same way as the classic RSI but is more sensitive to recent prices.
Oversold markets have Laguerre RSI values of 0,20 (20 percent) or lower. Overbought markets have Laguerre RSI values of 0,80 (80 percent) or higher.
This example shows the Laguerre RSI on an instrument in a bearish trend. In the case of bearish instruments traders tend to focus on the points in time when the Laguerre RSI changes from overbought to the normal level. Three such moments are visible in this example.
This example shows the Laguerre RSI on an instrument in a bullish trend. In the case of bullish instruments traders tend to focus on the points in time when the Laguerre RSI changes from oversold to the normal level. Four such moments are visible in this example.