LOWESS (Locally Weighted Scatterplot Smoothing)

The LOWESS (Locally Weighted Scatterplot Smoothing) tool provides traders with a sophisticated method for trend analysis and breakout detection by combining locally weighted regression with a volatility-adaptive Gaussian Moving Average.

Usage

The indicator serves as a multi-functional trend and breakout analysis system. Traders can utilize the following components:

• Trend Identification: The primary smoothed line changes color based on direction. Use the green color to identify upward trends and the red color for downward trends.
• Pivot Analysis: The tool automatically identifies pivot highs and lows. These are used to project levels that act as local resistance or support.
• Breakout Monitoring: When price crosses a previously established pivot level, the indicator marks the breakout. By enabling the "Count Breaks" setting, users can track the persistence of a trend through consecutive successful breakouts.
• Volatility Visualization: The optional Gaussian Scatterplot displays crosses on the chart that provide a visual representation of price dispersion relative to the adaptive moving average.

Details

The script is built upon two core mathematical concepts:

1. LOWESS Smoothing: Unlike standard moving averages, Locally Weighted Scatterplot Smoothing uses weighted local regression. This allows the indicator to adhere more closely to local price action while filtering out high-frequency noise.
2. Modified Adaptive Gaussian MA: This calculation utilizes a Gaussian weighting function that adapts its sensitivity based on market volatility, calculated through a combination of Average True Range (ATR) and Standard Deviation. This adaptation ensures the smoothing remains relevant during both high-volatility expansions and low-volatility consolidations.

Settings

LOWESS (Locally Weighted Scatterplot Smoothing)

• Length: Adjusts the lookback period for both the LOWESS and Gaussian MA calculations. Higher values result in more smoothing and less sensitivity.

Pivots

• Length: Sets the number of bars required to the left of a high or low to confirm a pivot point.

Visualization & Mechanics

• Count Breaks: A toggle to display numerical labels showing the number of consecutive breakouts in the current trend direction.
• Gaussian Scatterplot: Toggles the visibility of the cross-based scatterplot representing the raw Gaussian MA values.

FAQ

How do I interpret the pivot labels? Diamond symbols represent the detection of a pivot point. When a level is breached, a line is extended and a label (or count) appears to signify a confirmed breakout.

What makes the Gaussian MA "adaptive"? The script uses the current ATR and Standard Deviation to modify the sigma value of the Gaussian distribution, meaning the "weight" of the average changes dynamically as market volatility fluctuates.

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.