Psychological Indicator - VertexFX

Psychological Indicator is a client side VTL indicator. It is based on the relations ship between closing price of each bar within the indicator calculation period. It calculates the percentage of bars that close above previous candle close within the indicator calculation period. This is then plotted as an oscillator in the indicator pane. Psychological indicator works like other oscillators. Rising indicator line indicates up trend and falling indicator line implies down trend. Indicator values above 70 can be considered overbought and values below 30 can be taken as oversold. When the indicator remains in the higher extreme levels, it means the market is trending upward with strength. However, a strong uptrend usually leads to overbought market conditions and consolidation or trend reversal is imminent. Opposite situation happens in strong down trends. Thus the indicator can warn about short term price extremes.
Psychological indicator can be used to generate trading signals. One method is to use it to generate counter trend trades. When the indicator reaches upper extreme levels, sell position can be opened. Trade can be initiated when price reversal is confirmed by candle patterns, with the psychological indicator showing overbought market conditions. Buy positions can be opened when the indicator reaches oversold levels and upward reversal candle appears.
The indicator calculation period can be customized with the parameter period. To change parameter value, open the script in VTL editor, parameters are located at the top of the script file. Change the parameter value, save and compile and apply to chart again for the new settings to take effect. (2.58 KB)

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