Price & Momentum Reversal Indicator [TradeDots]

1. Aug. 2024

Price & Momentum Divergence Indicator is a variant of the Chande Momentum Oscillator (CMO), designed to identify reversal patterns in overvalued and undervalued markets. This indicator aims to mitigate the common problem of all oscillating indicators: false buy/sell signals during prolonged market trends, by incorporating a volume-weighted approach and momentum analysis.

📝 HOW IT WORKS

Price Extremeness Calculation
The indicator evaluates the extremeness of the current price by analyzing price changes over a fixed window of candlesticks.

It separates the price changes into positive and negative changes, then multiplies them by the bar volume to obtain volume-weighted values, giving higher significance to bars with larger volumes.

Extremeness Ratio
The ratio is calculated by taking the difference between the total positive changes and total negative changes, and then dividing this result by the sum of the total positive and negative changes.

The result is then smoothed to reduce market noise and rescaled to a range between -100 to 100, where 100 indicates all price changes within the window are positive.

Momentum Analysis
Momentum is calculated by measuring the rate of change of the smoothed extremeness ratio, indicating whether market extremeness is slowing and showing signs of reversion.

Reversal Signal Confirmation
For an asset to be considered a reversal, it has to be in the overvalued or undervalued zone (exceeding the overvalued & undervalued threshold). It must then show a slowed momentum change and a price reversion.

Lastly, candlestick analysis is used to confirm the reversal signal, ensuring there is no room for further breakout price movement.

🛠️ HOW TO USE

Candlestick Visualization
Candlestick bodies are painted with gradient colors representing the smoothed price extremeness (OBOS Index), ranging from -100 (solid red) to 100 (solid green). The exact value is displayed in a table at the bottom right corner.

Slowing price momentum is indicated with blue (bearish) and purple (bullish) colors, showing market pressure from the opposite side.



Reversal Confirmation
A decrease in price momentum combined with a price reversal triggers a signal label on the candlestick, indicating a potential pullback or reversal. This can serve as a reference for better entry and exit points.



⭐️ Premium Features

Higher Timeframe (HTF) Analysis
The indicator includes a feature to apply the same algorithm to a selected higher timeframe, ensuring trend alignment across multiple timeframes.



Alert Functions
Real-time notifications for overvalued and undervalued conditions, allowing traders to monitor trades and reversal signals anywhere and anytime.



❗️LIMITATIONS

• Accuracy decreases in volatile and noisy markets.
  
• Extended bullish or bearish market conditions may affect performance.
  

See Author's instructions below to get instant access to this indicator.

RISK DISCLAIMER

Trading entails substantial risk, and most day traders incur losses. All content, tools, scripts, articles, and education provided by TradeDots serve purely informational and educational purposes. Past performances are not definitive predictors of future results.

15. Aug. 2024

Versionshinweise

• Updated alert features
  
• New dashboard settings
  

4. Dez. 2024

Versionshinweise

• New dashboard settings
  
• Default volume-weighted