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WaveTrend (WT)

What the WaveTrend oscillator draws, how its two lines and its ±53 and ±60 levels are read, its settings on MillionChart and a worked example on gold.

WaveTrend is a smoothed oscillator of the typical price — a channel index in the spirit of the CCI, passed through two moving averages — drawn as two lines whose crossings near the overbought and oversold levels are the signals. It is drawn in its own pane around zero with levels at ±53 and ±60. It became popular through LazyBear's community script of 2014; MillionChart follows that definition.

WaveTrend (10, 21) under gold, daily candles
WaveTrend (10, 21) under gold, daily candles

What it shows#

  • WT1 — the main line (green), in its own pane. Rising means the typical price is pulling above its recent average; above the overbought levels the move is stretched, below the oversold ones washed out.
  • WT2 — a 4-bar simple moving average of WT1 (red, dotted); the crossings of the two are the triggers.
  • WT1 - WT2 — the gap between the lines as a light blue area from zero.
  • Overbought 1 and Oversold 1 — solid levels at +60 (red) and −60 (green); Overbought 2 and Oversold 2 — dashed levels at +53 and −53; Zero — a dotted line at 0.

How it is calculated#

The typical price (the average of the high, the low and the close) is averaged with an exponential moving average over the Channel length (10); the distance of the typical price from that average is averaged the same way, and the channel index is the distance divided by 0.015 times its average — the CCI's construction with exponential averages. WT1 is the exponential moving average of that index over the Average length (21); WT2 is the simple 4-bar average of WT1. The indicator always works on the typical price; it has no source setting.

How traders use it#

  • WT1 crossing above WT2 while both are below the oversold levels is the script's buy signal; WT1 crossing below WT2 above the overbought levels is its sell signal. Crosses in the middle of the range carry less weight.
  • The ±60 levels are the stronger extremes and ±53 the earlier ones; a cross between the two is the common compromise.
  • Divergence at the extremes — price at a new high, WT1 at a lower high — is one of the more popular readings of this oscillator.
  • Watch out for: in a strong trend WT1 stays beyond the levels and gives crosses against the trend that fail; the two averages make the signals a few bars late, and the levels are fixed numbers from the script, not fitted to any market.

Settings#

SettingDefaultWhat it changes
Channel length10Bars of the exponential averages that build the channel index; shorter makes WT1 react faster
Average length21Bars of the exponential average that smooths the index into WT1; longer is smoother
Colours and style—The colours of WT1, WT2 and the WT1 - WT2 area, and of Overbought level 1, Overbought level 2, the Zero line, Oversold level 2 and Oversold level 1

Example on gold#

Suppose gold has fallen for two weeks from $4,380 to $4,270 and WT1 has sunk to −70, under both oversold levels. Price holds $4,270 for three days, WT1 curls up and crosses above WT2 at about −62. For example, a trader looking for the end of the pullback could take that cross as the buy signal of the method, with a stop under $4,260. A new low that pushes WT1 back below WT2 would invalidate it; a cross of WT1 below WT2 above +53 would be the sell signal that closes the trade.

Add it to your chart#

  1. Click Indicators in the top strip (on the Pro screen you can press I).
  2. Type wavetrend and click the indicator.
  3. Click its chip in the legend to open the Inspector and change the settings; drag the chip to reorder; the dot hides it; × removes it.