RSI trend permission and Fibonacci pullback rules

Name three parts of the setup

Editorial note: this article treats the rsi-midline as a permission switch rather than a standalone forecast. A fibonacci-retracement pullback becomes a complete momentum-strategy hypothesis only when the oscillator state, the isolated swing used to measure the ratio, and the countermove reversal that would falsify the setup can all be named.

The archive workflow pairs a 14-period relative-strength-index with a measured pullback. Dominant-trend state is classified as up when that reading is above 50 and as down when it is below 50.

The rsi-midline as trend permission

A 14-period relative-strength-index can be restated as a zero-centered-rsi by subtracting 50. Readings above zero match relative-strength-index readings above 50, and readings below zero match readings below 50.

Price bars can be painted according to whether the 14-period reading is at or above 50 or below 50, with an alert when that reading crosses 50. The same 50 mark is the rsi-midline used to split an uptrend classification from a downtrend classification.

The next bar's close that would push a 14-period relative-strength-index across 50 can be solved in advance as a numeric measure of distance to a trend-state flip.

The isolated swing and the countermove-ratio

A fibonacci-retracement is a pullback measured as a stated fraction of a prior dominant swing, commonly marked at 38.2, 50, and 61.8 percent of that range.

A countermove is measured as a percentage of the most recent dominant swing. That countermove-ratio is the current adverse swing divided by the prior dominant swing and scaled as a percentage. A reversal of that countermove near 38.2, 50, or 61.8 percent of the prior swing is the location condition of the joint setup.

The measured swing can be built from isolated extremes: the highest of the three most recent isolated highs and the lowest of the three isolated lows that precede that high. An isolated-high is a pivot high defined either as a local peak versus adjacent bars or as the highest of a short stack of such peaks. An isolated-low is a pivot low defined either as a local trough versus adjacent bars or as the lowest of a short stack of such troughs that precede the reference high.

The retracement percentage equals 100 times the decline from that isolated high to the current low, divided by the decline from that isolated high to the matching isolated low.

Isolated highs and lows can also be defined as local extremes versus the immediately adjacent bars, after which fibonacci-retracement lines are drawn from one isolated extreme to the other.

One testable momentum-strategy

Editorial reading: a momentum-strategy here is a joint procedure that treats trend permission from the rsi-midline, location from a measured retracement, and reversal of the countermove as one testable rule set. The archive describes those pieces as a historical workflow. It does not, by itself, prove a live decision rule.

The setup is falsified if the countermove does not reverse near the marked ratio, or if the 14-period relative-strength-index is not on the permitted side of 50.

Other ways to anchor the same pairing

Retracement grids can alternatively be anchored on the highest high and lowest low of a stated lookback, or on a major low taken from a decline of 15 percent or more, still paired with a 14-period relative-strength-index marked at 50.