Standardized SuperTrend Oscillator

Nov 8, 2023

The Standardized SuperTrend Oscillator (SSO) is a versatile tool that transforms the SuperTrend indicator into an oscillator, offering both trend-following and mean reversion capabilities. It provides deeper insights into trends by standardizing the SuperTrend with respect to its upper and lower bounds, allowing traders to identify potential reversals and contrarian signals.

Methodology:
Lets begin with describing the SuperTrend indicator, which is the fundamental tool this script is based on.

SuperTrend:
The SuperTrend is calculated based on the average true range (ATR) and multiplier. It identifies the trend direction by placing a line above or below the price. In an uptrend, the line is below the price; in a downtrend, it's above the price.

pine_st(float src = hl2, float factor = 3., simple int len = 10) =>    float atr = ta.atr(len)    float up  = src + factor * atr    up       := up < nz(up[1]) or close[1] > nz(up[1]) ? up : nz(up[1])    float lo  = src - factor * atr    lo       := lo > nz(lo[1]) or close[1] < nz(lo[1]) ? lo : nz(lo[1])    int   dir = na    float st  = na    if na(atr[1])        dir := 1    else if st[1] == nz(up[1])        dir := close > up ? -1 : 1    else        dir := close < lo ? 1 : -1    st := dir == -1 ? lo : up    [st, dir]

SSO Oscillator:
The SSO is derived from the SuperTrend and the source price. It calculates the standardized difference between the SuperTrend and the source price. The standardization is achieved by dividing this difference by the distance between the upper and lower bounds of the SuperTrend.

float sso = (src - st) / (up - lo)

Components and Features:

1. SuperTrend of Oscillator - An additional SuperTrend based on the direction and volatility of the oscillator, behaving as the SuperTrend OF the SuperTrend. This provides further trend analysis of the underlying broad trend regime.
   
2. Reversion Tracer - The RSI of the direction of the original SuperTrend, providing a dynamic threshold for premium and discount price areas.
   

   float rvt = ta.rsi(dir, len)

   
3. Heikin Ashi Transform - An option to apply the Heikin Ashi transform to the source price of the oscillator, providing a smoother visual representation of trends.
   
4. Display Modes - Choose between Line mode for a standard oscillator view or Candle mode, displaying the oscillator as Heikin Ashi candles for more in-depth trend analysis.
   

Contrarian and Reversion Signals:

• Contrarian Signals - Based on the SuperTrend of the oscillator, these signals can act as potential buy or sell indications, highlighting potential trend exhaustion or premature reversals.
  
• Reversion Signals - Generated when the oscillator crosses above or below the Reversion Tracer, signaling potential mean reversion opportunities or trend breakouts.
  

Utility and Use Cases:

1. Trend Analysis - Utilize the SSO as a trend-following tool with the added benefits of the oscillator's SuperTrend and Heikin Ashi transform.
   
2. Valuation Analysis - Leverage the oscillator's reversion signals for identifying potential mean reversion opportunities in the market.
   

The Standardized SuperTrend Oscillator enhances the capabilities of the SuperTrend indicator, offering a balanced approach to both trend-following and mean reversion strategies. Its customizable options and contrarian signals make it a valuable instrument for traders seeking comprehensive trend analysis and potential reversal signals.

Nov 23, 2023

Release Notes

Improved mothodology

Jan 12, 2024

Release Notes

Added alerts, tweaked code.

Jan 25, 2024

Release Notes

Added option for any alert call.