This study is an improved, flexible, fully-customizable version of the one proposed by Steve Karnish of Cedar Creek Trading, who aimed to create an oscillator based on , with the goal of spotting divergencies that occurs outside the bands yet providing valuable entries on the crossings trough a smoothed signal.
Made a Zero Line normalization, where 0 is essentially the BBs basis MA, whereas +100 -100 represents those classic 2 Stdev;
Added two levels of interest based on golden ratio working with the two above to get such an Overbought/Oversold Area. Those levels slightly move apart from a 1.5 Stev.
Made possible to set as basis average instead John’s classic ;
While I kept the original “CCT Oscillator” as a reliable divergence-hunter, I get from it the “Smoothed Oscillator” with a triple average smoothing. You can only play with the first smoothing step by “Oscillator Smoothing” while following are fixed.
Despite little differences occurs, you can consider the Smoothed Oscillator itself as the Signal on the original CCT Oscillator.
Derived the “Signal” that works on the Smoothed Oscillator. You can play with different smoothing length.
Add a customizable which helps weighting trend strength, weakness, . (mirrored on the Zero Line for aesthetics only)
Add a “BB Width” representation so as you can stay in touch with BB , squeezes, and so on. It is a non-analitic data (not 100 normalized). Use “BBW Multiplier” to match visual reading.
HOW TO USE (NOT TO USE)
The indicator works well when strong directional moves occurs and even better in a sideways market (wide trading range). So there are three main evaluable application:
During an Up-trend, spotting negative divergencies on CCT Oscillator in the Oversold Area (better above +100) tell us that a correction or a reversal will probably occur. It’s time to consider a stop profit or look for a good re-entry after the pull-back.
During a Down-trend, spotting positive divergencies on CCT Oscillator in the Overbought Area (better below -100) tell us that a correction or a reversal will probably occur. It’s time to consider a stop profit or look for a good re-entry after the pull-back.
In a Sideway Market, look for both positive and negative divergencies on CCT Oscillator in the Oversold/Overbought Areas, trading in the range, better with the confirmation from such a and a based indicator.
>>> If you're not a pro you would better left counter-trend and mean-reversal setups to “trading titans”. <<<
“OK! And what about signals!?” you tell. :D There are many ways to get signals from crossings and it’s up to you to find what work better to you needs. You can start testing the original Steve Karnish method, using the “CCT Oscillator”/“Smoothed Oscillator” crossings (a 9 period smoothing on a 20 period BB could be a reasonable begining).
Whipsaws makes it difficult? Give a try to “Smoothed Oscillator”/“Signal” crossings. Observe how the price act when “Smoothed Oscillator” penetrate Overbought Area from above or Oversold Area from below after a divergence took place.
Test a lot BB Length-Signal Smoothing combos.
Test with instead using John’s .
Never forget the divergencies’ reliability is time-correlated yet timeframe-correlated too (the longer the better!).
Never forget that the Zero Line (as the basis of BBs) tends to act as resistance/support.
I do the best I can to realize such a flexible tool. Now is up to you to find what better suit your needs.
This script won’t be an out of the box stategy as no other indicator by itself, tough if you tell it could become a piece of the puzzle.
So that his is basically a price-based indicator you would better consider to pair it with a volume-based or an absolute-momentum based one .
Most important is you first focus on the market in order to detect strong uptrend/downtrend or sideways, better using a supertrend, moving averages (or whatever works better for you) paired with a .
As literatures explains (such many others indicators) do their best in ranging markets, yet this version could be as useful when a strong directional move takes place.
THIS WORK TAKES HOURS OF RESEARCH, DEVELOPMENT, TESTING…
SHARING IS INTENDED FOR EDUCATIONAL PURPOSE ONLY. NOT FOR PROFESSIONAL USE.
WILL APPRECIATE ANY FEEDBACK, QUESTION, SUGGESTION! (*)
(*) Please don’t ask me for “magic settings” which do not exist at all, nor for “kaleidoscopic effects” cause I’m a big fan of such a minimalistic yet professional layouts.
FOLLOWUP TO CHECK UPDATES!