Investing & Trading

Sentiment Zone Oscillator Study

By Samantha Baltodano


TL;DR:

The Sentiment Zone Oscillator (SZO) is a technical indicator that measures market sentiment and identifies overbought and oversold levels. 


It's calculated by finding the sum of "up" bars minus "down" bars and then multiplying by 100 and dividing by the period. 


Overbought and oversold lines are calculated using the highest and lowest values of the SZO and its range over a long-length period. The SZO is based on the idea that extreme bullish or bearish tendencies will lead to a trend reversal.



What Is The Sentiment Zone Oscillator Study?

The Sentiment Zone Oscillator (SZO) is a technical indicator which measures the overall market sentiment (bullish or bearish) and identifies overbought and oversold levels. 


The calculation of the SZO is based on a premise that extremely bullish or bearish tendencies will eventually lead to the trend switching directions AKA trend reversal.


So, how do you calculate the SZO?


In order to calculate the main plot, the 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 also 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 (coming soon) which adds Buy and Sell orders once these signals occur.



Test The Sentiment Zone Oscillator Study

Great news! 


You can back test this exact strategy on historical data for any of your favorite symbols using TradingView. 


This strategy has already been built and all you have to do is log in and take it for a spin. You can access this indicator here.


If you’re new to back testing and to TradingView, don’t worry. I created a step-by-step guide you can follow to begin testing the Sentiment Zone Oscillator Study.


Summary

  • The Sentiment Zone Oscillator (SZO) measures market sentiment and identifies overbought/oversold levels.
  • It's based on the premise that extreme bullish/bearish tendencies lead to trend reversal.
  • The main plot is calculated by finding the TEMA-smoothed sum of "up" and "down" bars, and the overbought/oversold lines are based on the highest/lowest SZO values and its range.
  • As SZO reaches new extremes, the overbought/oversold lines are plotted at new levels.


Sentiment Zone Oscillator is just one of many studies that Archaide automates. For a full list of strategies and studies available click here.


Like what you read? Check out the rest of our content!