What Is the CMB Composite Index?
Constance Brown first presented the CMB Composite Index, an unbound momentum indicator, in her book Technical Analysis for the Trading Professional. The traditional RSI indicator, created by Welles Wilder, had several drawbacks that this updated version of RSI aims to address. First, Brown’s signal now includes a momentum component, which Wilder’s version does not. Brown also decided to turn the CMB Composite Index into an unbound indicator. Some reversal indications may be missed by traditional RSI because of its restricted character. Brown recommends looking for divergences between the CMB Composite Index and traditional RSI, which can indicate an upcoming reversal.
Usually, the indicator line’s fast and slow moving averages are shown alongside the CMB Composite Index. Buying and selling opportunities may be indicated by MA crossings with the indicator line or with one another.
Learn More. Traditional RSI
Calculating the CMB Composite Index
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RSI Chg = 9-period ROC of 14-period RSI
RSI Mom = 3-period SMA of 3-period RSI
Composite Index Line = RSI Chg + RSI Mom
Fast SMA Line = 13-period SMA of Composite Index Line
Slow SMA Line = 33-period SMA of Composite Index LineFirst, the 14-period RSI’s 9-period rate of change is determined. The value can vary outside of the usual RSI bounds when the rate of change is used instead of the RSI itself. Second, the 3-period RSI’s 3-period simple moving average is computed. As a result, the indicator value gains momentum.
The Composite Index is then created by adding the values from the first two phases. Unlike Wilder’s conventional RSI, this formula does not include normalization.
This implies that the results may go outside of the conventional RSI’s 0–100 range. Values of the CMB Composite Index may even be negative. The user cannot change the settings of the CMB Composite Index itself.
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