SJ WaveTrend

WaveTrend Indicator – Full English Brief for TradingView

Description:

The WaveTrend Oscillator (WT) is a momentum-based indicator originally developed by LazyBear, designed to identify overbought and oversold market conditions with high precision. It is conceptually similar to the RSI and Stochastic Oscillator but uses a wave-based mathematical approach to detect turning points in price action earlier and more smoothly.

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🔍 How It Works

WaveTrend analyzes the difference between price and its moving average (typically the exponential moving average of the Typical Price).
It then applies multiple layers of smoothing to filter out noise and produce two oscillating lines — WT1 (fast) and WT2 (slow).

The crossing points between WT1 and WT2 are used to identify momentum shifts:
• When WT1 crosses above WT2 from below the oversold zone → Bullish signal
• When WT1 crosses below WT2 from above the overbought zone → Bearish signal

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⚙️ Core Formula Concept

The WaveTrend calculation typically follows this process:
1. Compute the Typical Price (TP) = (High + Low + Close) / 3
2. Calculate the Exponential Moving Average (EMA) of TP over a short length
3. Determine the Raw Wave (ESA) and De-trended Price Oscillator (DPO)
4. Apply double smoothing to produce the final WT1 and WT2 values

These smoothed waves behave like energy waves that expand and contract based on market volatility — hence the name WaveTrend.

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📈 Interpretation
• Overbought Zone: WT values above +60 to +70
• Oversold Zone: WT values below -60 to -70
• Crossovers: WT1 crossing WT2 signals a potential trend reversal
• Divergence: When price makes a new high/low but WT does not, it signals momentum weakening

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🧠 Trading Insights
• Best used on higher timeframes (H1 and above) for trend confirmation, and on lower timeframes (M15–M30) for precise entries.
• Combine with ADX, EMA Cloud, or Volume Filters to confirm real momentum shifts and avoid false signals.
• You can highlight WT Diff (WT1 - WT2) to visualize momentum expansion and contraction; large positive or negative differences often precede strong reversals.