Overbought & Oversold Zones - MTF Signals

The Overbought & Oversold Zones - MTF Signals indicator highlights extreme directional conditions directly on the price chart and across multiple timeframes using gradient exhaustion zones. It identifies potential market exhaustion states by combining a custom Pressure Index model with volatility-adjusted envelopes, providing traders with visual context for sustained buying or selling pressure.

Usage

The indicator is primarily used to identify areas where price may be overextended. Unlike traditional oscillators that sit in a separate pane, this tool projects gradient zones directly onto the price action:

• Overbought Zones: When the Pressure Index exceeds 95, red gradient zones appear, fading downward from the upper envelope to signal potential exhaustion.
• Oversold Zones: When the Pressure Index drops below 5, green gradient zones appear, fading upward from the lower envelope to signal potential exhaustion.
• MTF Context: Use the multi-timeframe panel in the top-right corner to see if exhaustion on the current timeframe aligns with higher timeframes. For example, an Overbought (OB) signal on the 15m chart carries more weight if the 1H and 4H timeframes also show high Pressure Index values.
• Trend Filtering: In a strong uptrend, brief dips into the "Oversold" zone on lower timeframes may represent pullback opportunities rather than reversals.

Details

The core of the indicator is the Pressure Index, which evaluates price behavior through two specific metrics:

1. Persistence: Measures how consistently price stays above or below a volatility-adjusted baseline over a lookback window, weighted by distance rather than a simple binary count.
2. Displacement: Measures the ATR-normalized distance between the current price and the baseline.

The visualization utilizes a three-layer gradient (Core, Mid, and Outer) anchored to dynamic volatility envelopes. This ensures that the thickness of the zones scales with market volatility (ATR), providing a consistent visual experience across different asset classes and timeframes.

Settings

General

• Sensitivity: Controls the reactivity of the Pressure Index. Settings 1-3 are faster for intraday trading, 4-6 are balanced for most markets, and 7-10 are slower for swing trading.
• Show Zones: Toggles the on-chart gradient ribbons on or off.
• Show Text Labels: Enables or disables the "Overbought" and "Oversold" text markers at the start of a new phase.
• Show MTF Panel: Toggles the visibility of the multi-timeframe dashboard.

Appearance

• Overbought Color: Sets the color for the upper exhaustion zones and labels.
• Oversold Color: Sets the color for the lower exhaustion zones and labels.
• Panel Size: Adjusts the text and element scaling of the MTF panel (Compact, Normal, Large).
• History Bars: Limits how many bars back the indicator renders gradient zones to maintain chart performance.

FAQ

How do I interpret the MTF Panel?

The panel displays the current timeframe (marked with a bullet) and the three next standard higher timeframes. Each row shows a gauge bar, the numeric Pressure Index (0-100), and a state pill (OB/OS).

Can I use this for alerts?

Yes, the script includes built-in alert conditions for "Overbought Entry" and "Oversold Entry," which trigger on the first bar of a newly identified exhaustion phase.

How can I access the Overbought & Oversold Zones - MTF Signals?

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