The Sentiment Zone Oscillator
In this article you will find information about the Sentiment Zone Oscillator
from Technical Analysis of Stocks & Commodities magazine 05/2012. Please read the original article comprehensively to get more information about the indicator and the trading system.
Equilla Script "Sentiment Zone Oscillator Strategy (Strategy)"
Equilla Script "Sentiment Zone Oscillator (Indicator)"
The indicator calculates the ratio of positive and negative price movements and forms this relationship into a oscillating horizontal line. The calculation of the SZO is very simple and can be easily understood. The author uses the indicator for a simple strategy, the rules are described below.
Calculation and Parameters
The SZO is calculated in two steps. First, an ongoing sum is generated, where a 1 is added on days with a higher close and and a -1 on days with lower closing price. This sum is smoothed with a triple exponentially average.
The result is called Sentiment Position. The oscillator is formed by dividing the SP through the period. Thus, the oscillator can highlight extreme situations, two extreme dynamic zones are calculated. The calculation has the purpose, to inlclude an area with 95% of the price action. Outbreaks in the extreme zones are rare and occur only after severe and extended price movements.
The SZO is suitable according to the author for the display of extreme situations in individual securities. Strong exaggerations in the price movements can be detect by the position of the SZO in one of the two extreme zones.
Due to conflicting information on trade rules, we have simplified this and interpret the remarks as follows. The SZO strategy is a buy signal when the SZO occurs in the extreme upper zone and the closing price is above a 60 period exponential average. A sell signal is triggered when the SZO enters the lower extreme of the zone and the closing price is below the 60 period exponential average.
- Period - Calculationmethod of the SZO
- LongPeriod - Calculationmethod of the extrem zones
- Percent - Controls the position of the extrem zones. The percentage indicates how large a proportion of the price action is, while the SZO between the extreme zones proceeds in the normal range.
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