Let’s get the criticism of the first edition right out of the picture up front. What’s the formula?!
The Composite Index will diverge where the RSI often fails to warn a trend reversal is approaching. The reason the Composite will pass on the warning is that it has a momentum indicator imbedded within the RSI formula. In English the steps you need are the following:
Step 1: create a 9-period momentum indicator of a 14-period RSI. Yes, it is momentum on RSI, not price. This is an indicator on an indicator.
Step 2: create a very short 3-period RSI and then a simple 3-period moving average of the 3-period RSI to smooth it slightly.
Step 3: add Steps 1 and 2 together to create the Composite Index.
Step 4: Create two ...