Mean Reversion Oscillator [Alpha Extract]

An advanced composite oscillator system specifically designed to identify extreme market conditions and high-probability mean reversion opportunities, combining five proven oscillators into a single, powerful analytical framework.

By integrating multiple momentum and volume-based indicators with sophisticated extreme level detection, this oscillator provides precise entry signals for contrarian trading strategies while filtering out false reversals through momentum confirmation.

🔶 Multi-Oscillator Composite Framework

Utilizes a comprehensive approach that combines Bollinger %B, RSI, Stochastic, Money Flow Index, and Williams %R into a unified composite score. This multi-dimensional analysis ensures robust signal generation by capturing different aspects of market extremes and momentum shifts.

// Weighted composite (equal weights)
normalized_bb = bb_percent
normalized_rsi = rsi
normalized_stoch = stoch_d_val
normalized_mfi = mfi
normalized_williams = williams_r

composite_raw = (normalized_bb + normalized_rsi + normalized_stoch + normalized_mfi + normalized_williams) / 5
composite = ta.sma(composite_raw, composite_smooth)

🔶 Advanced Extreme Level Detection

Features a sophisticated dual-threshold system that distinguishes between moderate and extreme market conditions. This hierarchical approach allows traders to identify varying degrees of mean reversion potential, from moderate oversold/overbought conditions to extreme levels that demand immediate attention.

🔶 Momentum Confirmation System

Incorporates a specialized momentum histogram that confirms mean reversion signals by analyzing the rate of change in the composite oscillator. This prevents premature entries during strong trending conditions while highlighting genuine reversal opportunities.

// Oscillator momentum (rate of change)
osc_momentum = ta.mom(composite, 5)
histogram = osc_momentum

// Momentum confirmation
momentum_bullish = histogram > histogram[1]
momentum_bearish = histogram < histogram[1]

// Confirmed signals
confirmed_bullish = bullish_entry and momentum_bullish
confirmed_bearish = bearish_entry and momentum_bearish

🔶 Dynamic Visual Intelligence

The oscillator line adapts its color intensity based on proximity to extreme levels, providing instant visual feedback about market conditions. Background shading creates clear zones that highlight when markets enter moderate or extreme territories.

🔶 Intelligent Signal Generation

Generates precise entry signals only when the composite oscillator crosses extreme thresholds with momentum confirmation. This dual-confirmation approach significantly reduces false signals while maintaining sensitivity to genuine mean reversion opportunities.

How It Works

🔶 Composite Score Calculation

The indicator simultaneously tracks five different oscillators, each normalized to a 0-100 scale, then combines them into a smoothed composite score. This approach eliminates the noise inherent in single-oscillator analysis while capturing the consensus view of multiple momentum indicators.

// Mean reversion entry signals
bullish_entry = ta.crossover(composite, 100 - extreme_level) and composite[1] < (100 - extreme_level)
bearish_entry = ta.crossunder(composite, extreme_level) and composite[1] > extreme_level

// Bollinger %B calculation
bb_basis = ta.sma(src, bb_length)
bb_dev = bb_mult * ta.stdev(src, bb_length)
bb_percent = (src - bb_lower) / (bb_upper - bb_lower) * 100

🔶 Extreme Zone Identification

The system automatically identifies when markets reach statistically significant extreme levels, both moderate (65/35) and extreme (80/20). These zones represent areas where mean reversion has the highest probability of success based on historical market behavior.

🔶 Momentum Histogram Analysis

A specialized momentum histogram tracks the velocity of oscillator changes, helping traders distinguish between healthy corrections and potential trend reversals. The histogram's color-coded display makes momentum shifts immediately apparent.

🔶 Divergence Detection Framework

Built-in divergence analysis identifies situations where price and oscillator movements diverge, often signaling impending reversals. Diamond-shaped markers highlight these critical divergence patterns for enhanced pattern recognition.

🔶 Real-Time Information Dashboard

An integrated information table provides instant access to current oscillator readings, market status, and individual component values. This dashboard eliminates the need to manually check multiple indicators while trading.

🔶 Individual Component Display

Optional display of individual oscillator components allows traders to understand which specific indicators are driving the composite signal. This transparency enables more informed decision-making and deeper market analysis.

🔶 Adaptive Background Coloring

Intelligent background shading automatically adjusts based on market conditions, creating visual zones that correspond to different levels of mean reversion potential. The subtle color gradations make pattern recognition effortless.

1D


3D

🔶 Comprehensive Alert System

Multi-tier alert system covers confirmed entry signals, divergence patterns, and extreme level breaches. Each alert type provides specific context about the detected condition, enabling traders to respond appropriately to different signal strengths.

🔶 Customizable Threshold Management

Fully adjustable extreme and moderate levels allow traders to fine-tune the indicator's sensitivity to match different market volatilities and trading timeframes. This flexibility ensures optimal performance across various market conditions.

🔶 Why Choose AE - Mean Reversion Oscillator?

This indicator provides the most comprehensive approach to mean reversion trading by combining multiple proven oscillators with advanced confirmation mechanisms. By offering clear visual hierarchies for different extreme levels and requiring momentum confirmation for signals, it empowers traders to identify high-probability contrarian opportunities while avoiding false reversals. The sophisticated composite methodology ensures that signals are both statistically significant and practically actionable, making it an essential tool for traders focused on mean reversion strategies across all market conditions.