Oscillators have great utility in ascertaining the momentum’s orientation and the likelihood of mean reversals. Particularly, those oscillators that operate within boundaries and include markers showing when the market is oversold or overbought are highly effective.
The Simple Trend Detector is an oscillator that can help identify potential mean reversals stemming from oversold and overbought markets. It proves to be a useful tool for carrying out this analysis.
How the Simple Trend Detector Indicator Works?
The above-mentioned indicator is founded on the RSI and its algorithm employs formulas that are akin to those of the RSI.
The indicator employs a modified RSI formula to chart its line, which normalizes the fluctuations of the STD line within a range of zero to one. This leads to an oscillator line with greater swings in comparison to price swings on the price chart.
Buy Trade Setup
When to Enter?
To execute a trade, first, monitor the STD line until it falls below 0.3. Once this happens, check if there is a confluence when the STD line crosses back above 0.3 and there is a bullish price movement; then place a buy order.
When to Exit?
Raise the STD line to a value above 0.7, and terminate the trade once indications of a pronounced downward trajectory become visible in the STD line.
Sell Trade Setup
When to Enter?
To execute a sell trade, first monitor the STD line and wait for it to rise above 0.7. Then, look for a combination of the STD line crossing below 0.7 and bearish price behavior before placing the sell order.
When to Exit?
Lower the STD line to below 0.3 and exit the trade promptly when the STD line displays indications of a notable upward incline.
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