Sequence Waves [OmegaTools]

7 nov.

the sequence waves indicator, developed by omegatools, is a multi-functional tool designed to detect trends, sequences, and potential reversal signals based on price movements and volume. this indicator has two main modes, "trend" and "sequence," which determine how the indicator calculates directional changes. additional enhancements in this version include reversal signals, allowing users to identify potential long and short opportunities with specific entry cues.

input parameters

mode (mode): chooses the calculation basis for directional movement.
- "trend": uses a midline calculated from the highest high and lowest low over the "trend mode length" period to assess if the price is in an upward or downward trend.
- "sequence": compares the current price to the closing price of the previous "sequence mode length" period to detect shifts in direction.

counter mode (modec): sets whether the counter increments by a fixed amount (1 or -1) or the volume of the bar, impacting the indicator’s sensitivity.
- "fixed": increments or decrements the counter by 1.
- "volume": increments or decrements based on the period’s volume, making the indicator more responsive to high-volume periods.

percentile length (lntp): defines the lookback period for calculating overbought and oversold thresholds using a percentile method. shorter lengths make ob/os levels more reactive.

sensitivity (sens): controls the percentile-based ob/os thresholds, ranging from 10 to 100. higher values narrow ob/os zones, while lower values widen them, impacting signal frequency.

trend mode length (lnt1): sets the period length for midline calculation in trend mode, defaulting to 21. longer periods smooth the midline for detecting major trends.

sequence mode length (lnt2): sets the lookback period in sequence mode, with a default of 4. shorter lengths capture more frequent directional changes, while longer lengths smooth signals.

visual colors:
- up color (upc): sets the color for upward movements.
- down color (dnc): sets the color for downward movements.

calculation logic

midline calculation: in trend mode, a midline is derived from the average of the highest high and lowest low over the "trend mode length" period, acting as a reference to detect upward or downward movements.

counter calculation:
- in trend mode, if the close price is above the midline, the counter increases (or volume if volume mode is selected). it decreases when the price is below.
- in sequence mode, the counter increases if the close is above the closing price from "sequence mode length" periods ago and decreases if below.
the counter resets to zero on direction changes, creating clear directional transitions.

overbought/oversold percentiles: separate arrays track the counter’s values each time the direction changes, creating historical up and down values. ob and os thresholds are dynamically determined based on these arrays, with sizes limited by the percentile length and sensitivity inputs.

reversal signals: two new variables, "long" and "short," detect potential reversal points when the counter crosses specific thresholds:
- long: a long signal is generated when the counter switches to positive and exceeds the down percentile.
- short: a short signal is triggered when the counter switches to negative and exceeds the up percentile.

visual and display elements

counter plot: plots the counter value on the chart with color-coded columns, making it easy to spot directional momentum.

up and down percentiles: displays overbought (up percentile) and oversold (down percentile) thresholds to identify potential reversal zones.

regime background: the background color changes based on market regime:
- bullish (up percentile > down percentile): greenish background.
- bearish (down percentile > up percentile): reddish background.
- neutral (both percentiles equal): grayish background.

reversal signals: plotted as small triangles on the chart for visual confirmation of potential long (triangle up) and short (triangle down) reversal signals.

obs background: changes color when the counter exceeds ob or os thresholds, creating a visual cue for extreme market conditions:
- overbought: background changes to a faint down color.
- oversold: background changes to a faint up color.

status table: displayed on the right side of the chart, providing real-time status information:
- status: shows "overbought," "oversold," "long," "short," or "none" based on the current counter position.
- regime: indicates whether the market is in a "bullish," "bearish," or "neutral" state based on the percentile comparison.
- percentile up/down: displays the current up and down percentiles for quick reference.

how to use the indicator

trend following: in trend mode, use the midline-based counter to gauge if the market is in an uptrend (positive counter) or downtrend (negative counter).

reversal detection: the ob/os thresholds assist in identifying potential reversal points. when the counter exceeds the up percentile, it may indicate an overbought state, suggesting a bearish reversal. similarly, dropping below the down percentile may indicate an oversold state, suggesting a bullish reversal.

entry signals: use the long and short reversal signals for potential entry points, particularly in trending or range-bound markets. these signals are indicated by up and down triangles.

sequence trading: in sequence mode, the indicator tracks shorter-term directional shifts, making it suitable for detecting smaller momentum patterns based on recent price comparisons.

volume sensitivity: selecting volume mode enhances sensitivity to high-volume moves, allowing it to detect stronger market activity in both trend and sequence modes.

the sequence waves indicator is suited to both short-term and long-term traders. it allows for detailed trend analysis, reversal detection, and dynamic ob/os signals. the inclusion of visual reversal cues makes it a flexible tool adaptable to a variety of trading strategies.