CMB Composite index

#momentum #divergence #oscillator 

Inventor: Constance Brown 

An improved version of RSI created by Constance Brown. It mixes the speed of RSI (RSI momentum) with a smoothed short-term RSI, and unlike RSI it has no upper or lower limit. Its main job is to show divergences that normal RSI hides, because RSI often gets stuck near its 0-100 boundaries. 

Default period: RSI 14 with 9-bar momentum, plus 3-period average of RSI 3; plotted with 13 and 33 period averages of itself 

Rising line indicates momentum building. Falling line indicates momentum fading. 

Useful readings: 

Composite makes lower high while RSI makes equal or higher high: Hidden bearish divergence, top warning 

Composite makes higher low while RSI makes equal or lower low: Hidden bullish divergence, bottom warning 

Composite above both its averages: Momentum trend up 

Composite below both its averages: Momentum trend down 

Composite crossing its averages before price turns: Early warning of reversal 

Best used side by side with RSI, not alone 

Objective rules: 

Bullish: Composite line crosses above its 13-period average. 

Bearish: Composite line crosses below its 13-period average. 

Strong bullish setup: Composite above both 13 and 33 averages AND both averages rising 

Strong bearish setup: Composite below both 13 and 33 averages AND both averages falling 

Divergence rule: Price at new high but Composite peak lower than previous peak, tighten stops on longs 

What makes it unique: 

It was built specifically to expose divergences that RSI physically cannot show because RSI is capped at 0-100. Its unbounded scale is the whole point.

The indicator table value in TradePoint & RZone also provides you with a list of all values of this indicator for any group of stocks. This will allow you to compare the readings of this indicator across different stocks.

This indicator is also available in the System Builder of RZone & TradePoint for all charting methods. Using the system builder, you can develop various strategies based on the different conditions already present in this indicator. Additionally, it can be used with other indicators or price patterns to develop effective trading strategies. For any group of stocks and market segments, you can scan and backtest stocks based on those strategies.

The indicator is applicable to all types of charting. Calculated based on the number of columns on P&F charts, bricks on Renko charts, lines on Line-break charts, candles on Heikin ashi charts, and lines on Kagi charts. While the formula and reading of the indicators remain the same, they become more dynamic on these charts.