The PSO, developed by Lee Leibfarth, is a rewired version of a short-period stochastic. This provides a quick response to changes in market direction. This highly sensitive indicator allows for early anticipation of price turns and can be used to establish definitive trading zones that identify potential trading opportunities.
Rules as suggested by Mr.Lee:
For long trades: (1) Premier stochastic crosses below 0.90 (2) premier stochastic crosses below 0.20
For short trades: (1) Premier stochastic crosses above -0.90 (2) premier stochastic crosses above -0.20
Not to second guess you on this - but the short/long trade parameters seem reversed from looking at the chart. It would seem when over 0.90 to go short, not go long... -0.90 go long, not short.
Outer Threshold Setups
Outer threshold setups form when the PSO crosses out of the outer limits and then returns. As previously mentioned, price has a tendency to pullback and then return to overbought or oversold areas. This can provide a good entry point to:
Go long when the PSO crosses below the upper threshold (0.9 in this example) after it has already crossed above the threshold. A short-term reversal may occur where price returns to the extreme overbought territory.
Go short when the PSO crosses above the lower threshold (-0.9 in this instance) after it has already penetrated the lower threshold. Again, a short-term reversal may occur as prices make another push lower.
Hey lazybear, did you analyzed power of your piece on 1H timeframe for divergence? Check that. And if you put a positive and negative divergence alert on that, it will be great...
cavain
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Please update this indicator, many people are still using it. Or provide any alternative if you have any in mind. Thank you for the amazing work lad.
Please clarify and explain.