Oscilator candles - momentum strategy

The Oscilator candles - momentum strategy indicator is a comprehensive trading tool that visualizes standard oscillators as candlestick charts to identify momentum shifts and trend reversals. By applying a modified Supertrend algorithm directly to these oscillator-based candles, the script provides a systematic approach to entries and exits based on momentum dynamics rather than just price action.

Usage

The script translates various oscillators (RSI, Stochastic, MACD, etc.) into a candlestick format (Open, High, Low, Close). This allows users to apply traditional technical analysis tools—in this case, a step-based Supertrend—to the momentum data itself.

Trading Signals:

• Long Entry: Occurs when the Supertrend turns bullish on the oscillator candles.
• Short Entry: Occurs when the Supertrend turns bearish on the oscillator candles.
• Exit: Trades are closed when the Supertrend direction reverses.

The strategy is particularly useful for identifying overextended trends or early momentum shifts that might not be immediately visible on a standard price chart.

Details

This strategy combines two main concepts:

1. Oscillator-Derived OHLC: Instead of plotting a single line, the script calculates oscillator values for the Open, High, Low, and Close of each price bar. This creates a "momentum candle."
2. Supertrend on Momentum: The Supertrend is calculated using the ATR of these oscillator candles. This acts as a trailing stop and signal generator that responds to the volatility of the oscillator rather than price volatility alone.

Settings

Oscillator Settings

• Oscillator Type: Choose between RSI, Stochastic, COG, MACD, TSI, CCI, CMO, or MFI.
• Length: The lookback period for the primary oscillator calculation.
• Short/Long Length: Specifically used for dual-length oscillators like MACD or TSI.

Supertrend Settings

• Show Supertrend: Toggles the visibility of the trailing stop line.
• Moving Average Type: Select the type of MA (EMA, SMA, HMA, RMA, VWMA, WMA) used to calculate the ATR.
• ATR Length: The period used for the Average True Range calculation on the oscillator candles.
• ATR Multiplier: Controls the distance of the Supertrend line from the oscillator candles.
• Use Wicks for Supertrend: Determines if the high/low (wicks) of the oscillator candles are used for stop calculations.

Strategy Settings

• Color By Previous Close: If enabled, candles are colored based on the change from the previous candle's close; otherwise, they are colored based on their own Open/Close relationship.
• Backtest Start/End Time: Defines the specific date range for strategy execution.

FAQ

How do I interpret the oscillator candles?

The candles represent the momentum of the selected oscillator. Green candles indicate rising momentum, while red candles indicate falling momentum. When the Supertrend line stays below these candles, the trend is considered bullish.

Which oscillator works best for this strategy?

The "Stoch" (Stochastic) and "RSI" options are generally preferred for trend-following, while "MACD" provides a more lagging but filtered signal. Optimization is recommended for specific timeframes.

How can I access this tool?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.