PriceZoneOscillator

Description

The Price Zone Oscillator (PZO) is a technical indicator analyzing price in relation to certain levels (zones).

Two EMAs are calculated for the PZO: actual and sign-dependent. The latter takes into account price with sign: the price is considered negative if its value is less than that of the previous bar, zero if prices are equal, and positive otherwise. Once these averages are calculated, their percentage ratio is the resulting plot.

Several levels are introduced to analyze the PZO plot: "+60", "+40", "+15", "-5", "-40", and "-60". These numbers represent corresponding percentage values. For additional confirmation, it is suggested that the PZO plot be accompanied with 60 period EMA and 14 period ADX. These two studies are used for checking trend existence and direction. ADX values higher than 18 suggest that the market is trending, otherwise the non-trending mode is spotted. When the market is trending, the trend direction can be defined using the EMA: the price crossing above the EMA suggests the uptrend, otherwise the downtrend is detected. When the trend mode and direction are defined, use the crossovers of the PZO with corresponding levels as Buy and Sell signals for long and short positions (see plots' descriptions for details).

 

Input Parameters

Parameter Description
price The price for which the EMAs are calculated.
length The number of bars used to calculate the EMAs for the oscillator.

Plots

Plot Description
PZO The Price Zone Oscillator plot.
+60 The "+60" level. Decline in PZO values after surpassing this level is considered a Sell signal to close a long position in a trending market (ADX > 18).
+40 The "+40" level. When the PZO plot crosses this level from above, it is considered a Sell signal to open a short position in a downtrend market (ADX > 18, price below the EMA). It is also considered a Sell signal in a non-trending market (ADX < 18).
+15 The "+15" level. When the PZO plot crosses this level from below, it is considered a Buy signal for a long position in a non-trending market (ADX < 18).
-5 The "-5" level. When the PZO plot crosses this level from above, it is considered a Sell signal for a short position in a non-trending market (ADX < 18).
-40 The "-40" level. When the PZO plot crosses this level from below, it is considered a Buy signal to open a long position in an uptrend market (ADX > 18, price above the EMA). It is also considered a Buy signal in a non-trending market (ADX < 18).
-60 The "-60" level. Growth in VZO values after falling below this level is considered a Buy signal to close a short position in a trending market (ADX > 18).
ZeroLine The Zero Level. When the PZO is positive, it is considered a Buy signal to close a short position in an uptrend market (ADX > 18, price above the EMA); when it is negative, it is considered a Sell signal to close a long position in a downtrend market (ADX > 18, price below the EMA).

Example*

*For illustrative purposes only. Not a recommendation of a specific security or investment strategy.

Further Reading

1. "Entering the Price Zone" by Walid Khalil and David Steckler. Technical Analysis of Stocks & Commodities, June 2011.

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