Kalman Hull RSI [BackQuant]

8 Mei

Kalman Hull RSI
At its core, this indicator uses a Kalman filter of price, put inside of a hull moving average function (replacing the weighted moving averages) and then using that as a price source for the the RSI, very similar to the Kalman Hull Supertrend just processing price for a different indicator.
This also allows it to make it more adaptive to price and also sensitive to recent price action. This indicator is also mainly built for trend-following systems

PLEASE Read the following, knowing what an indicator does at its core before adding it into a system is pivotal. The core concepts can allow you to include it in a logical and sound manner.

1. What is a Kalman Filter
The Kalman Filter is an algorithm renowned for its efficiency in estimating the states of a linear dynamic system amidst noisy data. It excels in real-time data processing, making it indispensable in fields requiring precise and adaptive filtering, such as aerospace, robotics, and financial market analysis. By leveraging its predictive capabilities, traders can significantly enhance their market analysis, particularly in estimating price movements more accurately.

If you would like this on its own, with a more in-depth description please see our Kalman Price Filter.

OR our Kalman Hull Supertrend

2. Hull Moving Average (HMA) and Its Core Calculation
The Hull Moving Average (HMA) improves on traditional moving averages by combining the Weighted Moving Average's (WMA) smoothness and reduced lag. Its core calculation involves taking the WMA of the data set and doubling it, then subtracting the WMA of the full period, followed by applying another WMA on the result over the square root of the period's length. This methodology yields a smoother and more responsive moving average, particularly useful for identifying market trends more rapidly.

3. Combining Kalman Filter with HMA
The innovative combination of the Kalman Filter with the Hull Moving Average (KHMA) offers a unique approach to smoothing price data. By applying the Kalman Filter to the price source before its incorporation into the HMA formula, we enhance the adaptiveness and responsiveness of the moving average. This adaptive smoothing method reduces noise more effectively and adjusts more swiftly to price changes, providing traders with clearer signals for market entries or exits.
The calculation is like so:

Pine Script®

Use Case
The Kalman Hull RSI is particularly suited for traders who require a highly adaptive indicator that can respond to rapid market changes without the excessive noise associated with typical RSI calculations. It can be effectively used in markets with high volatility where traditional indicators might lag or produce misleading signals.

Application in a Trading System
The Kalman Hull RSI is versatile in application, suitable for:

Trend Identification: Quickly identify potential reversals or confirmations of existing trends.
Overbought/Oversold Conditions: Utilize the dynamic RSI thresholds to pinpoint potential entry and exit points, adapting to current market conditions.
Risk Management: Enhance trading strategies by integrating a more reliable measure of momentum, which can lead to improved stop-loss placements and exit strategies.
Core Calculations and Benefits
Dynamic State Estimation: By applying the Kalman Filter, the indicator continually adjusts its calculations based on incoming price data, providing a real-time, smoothed response to price movements.
Reduced Lag: The integration with HMA significantly reduces lag, offering quicker responses to price changes than traditional moving averages or RSI alone.
Increased Accuracy: The dual filtering effect minimizes the impact of price spikes and noise, leading to more accurate signaling for trades.

Thus following all of the key points here are some sample backtests on the 1D Chart
Disclaimer: Backtests are based off past results, and are not indicative of the future.
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