Average Sentiment Oscillator

The Average Sentiment Oscillator indicator provides a momentum-based visualization of market sentiment by calculating and comparing the relative strength of bullish and bearish price action over a defined lookback period.

Usage

The indicator displays two lines: a bullish sentiment line (typically green/blue) and a bearish sentiment line (typically red). Because these values represent percentages of total movement, they generally mirror each other around a 50% centerline.

• Sentiment Shifts: The primary signal occurs when the lines cross the 50% level. When the bullish line rises above 50% (crossing over the bearish line), it indicates a shift toward bullish dominance. Conversely, when the bearish line rises above 50%, it indicates bearish dominance.
• Trend Filtering: Traders can use the oscillator to confirm the prevailing trend; a sustained position of the bullish line above the bearish line suggests a strong uptrend.
• Overbought/Oversold Levels: By applying horizontal levels at 70% and 30%, the oscillator can function similarly to an RSI or Stochastic. Values exceeding 70% may indicate an overextended trend, while values below 30% suggest potential exhaustion.
• Divergence: Discrepancies between price peaks and oscillator peaks can signal weakening momentum. For example, if price makes a higher high but the bullish sentiment line makes a lower high, a bearish reversal may be approaching.

Details

The Average Sentiment Oscillator is based on an original concept by Benjamin Joshua Nash and utilizes OHLC price data to determine sentiment. It offers three distinct calculation methods:

1. Intra-bar Analysis (Mode 1): This method calculates the bullish and bearish percentage for every individual candle within the period and then averages those percentages. This approach is more sensitive to "noisy" intra-bar price action and provides high accuracy regarding internal bar sentiment.
2. Group Analysis (Mode 2): This method treats the entire lookback period as a single "macro-candle." It uses the open of the first bar, the high/low of the entire range, and the close of the final bar to determine sentiment. This results in a smoother output that places more weight on the total price range.
3. Hybrid Analysis (Mode 0): This mode averages the results of both the intra-bar and group methods to provide a balanced representation of market sentiment.

Settings

• Period: Determines the lookback length (number of bars) used for the calculations. Smaller periods result in more leading but potentially false signals, while larger periods offer smoother, lagging confirmation.
• Calculation Method: Selects between the three modes of calculation: 0 (Combined), 1 (Intra-bar), or 2 (Group-based).

FAQ

What is the significance of the 50% level in the ASO? The 50% level represents the equilibrium point where bullish and bearish sentiment are equal. A cross above this level signifies that one side has gained the majority control over the price action for the selected period.

How does the Period setting affect the indicator? A shorter period makes the oscillator highly responsive to recent price changes, which is useful for scalping but prone to whipsaws. A longer period filters out market noise, providing a clearer view of the long-term sentiment trend.

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