This indicator was done specifically for the S&P500 index.
As you can see, below the 125 there's a lot more than in the upside. I've made some kind of a dynamic of the lows and the highs.
I've chosen the MA that best fits the SPX , and then calculated in Excel the percental mean and SDs of most important peaks and valleys that I've chosen in comparison to the 125 MA. This lead to the green, orange and red zones. BUT, I've calculated the peaks and valleys separately, as I assumed that a bear market and crashes have way more than bull markets. That's why the difference between the upper and the lower channels.
The neutral blue zone is composed by an upper of the highs and lower of the lows. No MA in this script uses the close price as a source.
This MA makes sense because it represents a semester of trading, for this particular asset.
It's also interesting to try it here too, as it has a little bit more of data:
As it's not a trading system, I have no batting average nor ratios for this.
Still, the measures of the peaks and valleys are very accurate and repeat themselves over and over again. The results were:
3rd resistance: 12.88%
2nd resistance: 10.12%
1st resistance: 7.36%
1st support: -6.42%
2nd support: -14.8%
3rd support: -23.18%
All referred to the mean, which is the 125 zone.
After the 1950's works like magic, but not before. You will see that it doesn't work in the great depression and it's crash.
How to use this indicator
- Green = First grade .
- Orange = Second grade . Caution.
- Red = Third grade . High chances of mean reversal.
- Blue zone = This is the neutral zone, where the prices are not cheap nor expensive.
When the price touches the orange MA, the most probable is that it will return to the green MA.
If the price touches the red zone, there's a high chance that this is a big turning point and it will reverse to the mean (green or blue zone).
Imagine you've bought each time the price touched the red support, check that and you'll start liking this indicator. I think it is a great entry point for investors. The red resistance is good too, but of course it works for a short period of time.
I've backtested this indicator since the beginning of the dataset and it works like magic, but ONLY for the SPX index (spot price).
Leave a comment or some coins if you like it!!!
(I've posted it before like an analysis, not as a script, my bad)
In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in a publication is governed by House Rules. You can favorite it to use it on a chart.