Thread: Ergodic Oscillator - VertexFX Indicator

Ergodic Oscillator is a powerful oscillator based upon moving averages and market cycle reversals. It comprises of two components, the main indicator (YELLOW) and the signal indicator (RED). The crossover of these two indicator components provides us with precise trading signals. The concept behind this indicator is the change in closing prices, and the absolute change in closing prices.

In the first step, we calculate the change in the current close price from the previous close price. In the second step, we calculate the absolute change in the current close price from the previous close price.

In the third step, we calculate the moving average of the change in closing prices, and the absolute change in closing prices over R_FIRST period. If the SMOOTHING_MODE is 0, we calculate the Simple Moving Averages, otherwise we calculate the Exponential Moving Averages.
In the fourth step, we again calculate the moving averages of the moving averages calculated in the previous step using the S_SECOND period.

The main component (YELLOW) is calculated as the ratio between the 2nd order moving average of the change in candle closes, against the 2nd order moving average of the absolute change in candle closes (both calculated in step four). This ratio is expressed as percentage.
The signal component (RED) is calculated as the moving average over the SIGNAL_PERIOD of the main (YELLOW) component.

The idea behind this indicator is that in trending markets, the change of candle closes is in the same direction, and remains steady or increases. As the market stalls and starts moving sideways, this change decreases or moves in opposite direction. As a result, the moving averages too change direction. Here we are using shorter values for R_FIRST and S_SECOND to eliminate as much of lag as possible.

BUY - Enter BUY trade when the main (YELLOW) line closes above the signal (RED) line below the zero level. Do not open the trade if candle has exhibited a gap-up opening.

SELL - Enter SELL trade when the main (YELLOW) line closes below the signal (RED) line above the zero-level. Do not open the trade if the candle has exhibited a gap-down opening.