Omega Ratio -> The NeW System

Omega Ratio → The NeW System 🚀
Calculate and visualize a smoothed Omega Ratio to measure upside vs. downside performance relative to a target return.

What is the Omega Ratio? 🤔
The Omega Ratio compares the total gains above a specified target return to the total losses below that target. Unlike other risk metrics that focus on volatility alone, Omega shows you how much reward you’re getting for every unit of shortfall risk. A higher Omega means your upside outweighs downside more attractively.

Indicator Inputs ⚙️
Source 📊: the price series to calculate returns from (e.g. close price).

Calculation Period 📆: number of bars over which returns are compared to the target. Longer periods smooth out fluctuations; shorter periods react faster to changing market conditions.

Target Return per Period (%) 🎯: the minimum return you aim for each bar (e.g. 0.1% per day).

Smoothing Period (EMA) 🔄: how many periods to apply an exponential moving average to the raw Omega Ratio, reducing noise and highlighting the trend.

Strong Threshold 🟢: above this value the line turns green, signaling strong upside vs. downside performance (default: 1.0).

Weak Threshold 🔴: below this value the line turns red, warning that losses outweigh gains relative to your target (default: 0.5).

How the Indicator Works 🧮
Calculate periodic returns by comparing each bar’s price to the previous bar.

Convert your target percentage into a decimal per period.

Accumulate gains above the target by summing every time the return exceeds the target amount.

Accumulate losses below the target by summing the shortfall whenever the return falls short of that target.

Form the raw Omega Ratio by dividing total gains above target by total losses below target. If there are no losses below the target, Omega is undefined (and we handle that gracefully).

Smooth with EMA to filter out spikes and reveal the underlying strength or weakness of the ratio.

Plot & Interpretation 🎨
Dynamic Line Color

🟢 Green when the smoothed Omega Ratio exceeds the Strong Threshold, indicating your asset is delivering more reward above target than risk below it.

🔴 Red when it falls below the Weak Threshold, warning that downside shortfalls dominate.

⚪ Gray between thresholds, suggesting a balanced but unimpressive performance.

Threshold Lines

A dashed green line marks the Strong Threshold.

A dashed red line marks the Weak Threshold.

Pro Tips 💡
An Omega above 1 means you’re gaining more above your target than losing below it—a positive sign.

An Omega below 1 warns that losses are outweighing gains relative to your goal.

Adjust the Target Return to fit your trading style: a higher target demands more “elite” performance, while a low target (even 0%) shows you pure upside vs. downside balance.

Use this indicator to instantly see whether an asset is consistently beating your expectations or struggling to hold ground—helping you make more informed entry and exit decisions.