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Wave Trend Oscillator

How far the typical price sits from its average, in units of its own average distance, smoothed into a line and a signal. How AlgoLift computes it and uses it.

IndicatorBy AlgoLiftUpdated 3 min read
On this page 11What it measuresFormulaInputs in AlgoLiftOutputs in AlgoLiftHow to read itBest in, worst inThree setups1. Oversold turn2. Trend-side turns only3. Exit on the opposite extremeCommon mistakes

TL;DR. A channel index like the CCI, built from exponential averages and smoothed again, with a short average as its signal line. Readings beyond +60 or -60 are stretched; the line crossing its signal marks a turn.

What it measures

  • Stretch from the average. How far the typical price is from its exponential average, divided by how far it usually is. A reading of 60 means unusually far above.
  • Its own scale. Because the distance is measured in the instrument's own typical distance, the same levels read the same on every market.
  • Turns. The signal line is a short average of the main line; the two crossing marks the line changing direction.

Formula

Inputs in AlgoLift

SettingDefaultRangeNotes
Channel period101 to 500Bars in the average of price and of its distance from it.
Average period211 to 500Bars in the average of the channel index. Longer is smoother and slower.
Signal period41 to 500Bars in the simple average of the line.
SourceHLC3Close, Open, High, Low, HL2, HLC3, OHLC4The published construction reads the typical price.

Outputs in AlgoLift

HandleTypePlottedNotes
WTNumericAlwaysThe smoothed channel index, around zero. Dashed guides at +60 and -60.
WT signalNumericAlwaysThe simple average of WT.

How to read it

  • Above +60: price is stretched far above its average. In a range, a turn down from here is a short setup.
  • Below -60: stretched far below; the mirror for longs.
  • WT crossing its signal: the line has turned. A cross up below -60, or down above +60, is the classic signal.
  • Near zero: price is near its average. Crosses here carry little information.
Common Misconception
Myth
Wave Trend above +60 means the market will fall.
Reality
It means price is far from its average by its own standard. In a strong trend the line can stay above +60 for a long time; pair the level with a turn (the signal cross) and a range filter.

Best in, worst in

Best in ranging and swinging markets, where stretched readings snap back toward the average.

Worst in strong trends, where it pins at an extreme and a fade loses again and again.

Three setups

1. Oversold turn

Enter long when a Crossover of WT above WT signal fires while WT is below -60 (a Comparison ANDed in). Mirror it above +60 for shorts.

2. Trend-side turns only

Take only the long turns while price is above an EMA of 200 bars, and only the short turns below it, so the oscillator times entries in the trend's direction.

3. Exit on the opposite extreme

Hold a long until WT rises above +60 and crosses below its signal, through Set Exit Condition.

Common mistakes

  • Fading every extreme. An extreme is a condition, not a signal. Wait for the cross.
  • Changing the source without noticing. The levels were drawn for the typical price; the close gives a noisier line.
  • Over-tuning the three periods. Three settings fit history easily. Sweep one at a time and look for a plateau (overfitting in trading).
Key Takeaway

Wave Trend measures how stretched price is from its average in its own units, and its signal cross times the turn: trade the cross at an extreme, not the extreme alone.

Next: compare the oscillators