The Sentiment Zone Oscillator (SZO) is a technical indicator which attempts to measure overall market sentiment (bullish or bearish) and marks overbought and oversold levels. Calculation of this indicator is based on a premise that extremely bullish or bearish tendencies will eventually lead to trend reversal.
In order to calculate the main plot, SZO finds the TEMA-smoothed sum of "up" bars minus sum of "down" bars on the specified period. An "up" bar has the price higher than that of the previous bar; a "down" bar, lower. The average is then multiplied by 100 and divided by the length of the period.
The main plot is accompanied with dynamic overbought and oversold levels. In order to calculate these lines, the highest and lowest values of SZO, as well as its range, are found on a long-length period. Overbought line is placed above the lowest value at a distance equal to the specified percentage of the SZO range. Oversold line is placed below the highest value at the same distance. As SZO reaches new extremes, overbought and oversold lines are plotted at new levels.
For information on Buy and Sell signals produced by the study, refer to the article on the Sentiment Zone strategy which adds Buy and Sell orders once these signals occur.
||The price used in main plot calculation.|
||The number of bars used in main plot calculation.|
||The number of bars used in calculation of overbought and oversold levels.|
||The percentage used in calculation of overbought and oversold levels.|
||The Sentiment Zone Oscillator.|
||The overbought line.|
||The oversold line.|
||The +7 level.|
||The -7 level.|
||The zero level.|
1. "Sentiment Zone Oscillator" by Walid Khalil. Technical Analysis of Stocks & Commodities, May 2012.
*For illustrative purposes only. Not a recommendation of a specific security or investment strategy.