ALPHA WAVE (Support)
The ALPHA Wave comes in 2 parts the “Cloud” and the “Wave” - The “Cloud” consists of multiple RSI, MFI & Stoch indicators - its key function it’s to follow the price action and momentum to help target reliably when price is effectively oversold or overbought and ultimately the highest chance of tops and bottoms of the markets. IT can be used in confluence with any strategy to help identify when the market is looking like a reversal. The “Wave” follows price movement and momentum with multiple background indicators to help identify incoming reversals included with the “Wave” contains Bullish and Bearish Auto Divergence that will again add further confluence to potential reversals.The base of this also functions in the background of the ALPHA PPrime to give active alerts for them to help identify reversals.
Recommended Timeframe: All Timeframes
Recommended Supporting Indicators: ALPHA Prime, ALPHA Momentiment
1.1 - REVERSAL - REVERSAL
1.2 - BULLISH REVERSAL - BULLISH REVERSAL
1.3 - BEARISH REVERSAL - BEARISH REVERSAL
2.1 - TOP/BOTTOM - TOP/BOTTOM
2.2 - BOTTOM - BOTTOM
2.3 - TOP -TOP
3.1 - DIP/PEAK - DIP/PEAK
3.2 - DIP - BULLISH DIP
3.3 - PEAK - BEARISH PEAK
THE “Cloud”The wave is effectively a visual representation of the strength of the price direction - when above 70 or below 30 - then these are key areas for expected reversals. They are color coordinated to help confirm the direction of and upcoming trend - white is bullish and orange is bearish - so if you see a clear color appearing then there may well be a trend change or continuation coming.Finally the wider the wave becomes then this is suggesting that the price is becoming overstretched and a quick reversal can be expected.
OVERBOUGHT/OVERSOLDThese alerts are essential giving a high chance of a market reversal by identifying heavily overbought and oversold zones - these always have a precursor of highlighted overbought/sold zones as preparation for a reversal. It works similarly to the traditional overbought and oversold strategies with the RSI (outlined below) although with far more confluences to give a much stronger induction of reversal.
The relative strength index (RSI) is a momentum indicator used in technical analysis that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can have a reading from 0 to 100. The indicator was originally developed by J. Welles Wilder Jr. and introduced in his seminal 1978 book, "New Concepts in Technical Trading Systems."
Traditional interpretation and usage of the RSI are that values of 70 or above indicate that a security is becoming overbought or overvalued and may be primed for a trend reversal or corrective pullback in price. An RSI reading of 30 or below indicates an oversold or undervalued condition.
The relative strength index (RSI) is a popular momentum oscillator developed in 1978.
The RSI provides technical traders signals about bullish and bearish price momentum, and it is often plotted beneath the graph of an asset's price.
An asset is usually considered overbought when the RSI is above 70% and oversold when it is below 30%.
Using the formulas above, RSI can be calculated, where the RSI line can then be plotted beneath an asset's price chart.
The RSI will rise as the number and size of positive closes increase, and it will fall as the number and size of losses increase. The second part of the calculation smooths the result, so the RSI will only near 100 or 0 in a strongly trending market.
As you can see in the above chart, the RSI indicator can stay in the overbought region for extended periods while the stock is in an uptrend. The indicator may also remain in oversold territory for a long time when the stock is in a downtrend. This can be confusing for new analysts, but learning to use the indicator within the context of the prevailing trend will clarify these issues.
The primary trend of the stock or asset is an important tool in making sure the indicator's readings are properly understood. For example, well-known market technician Constance Brown, CMT, has promoted the idea that an oversold reading on the RSI in an uptrend is likely much higher than 30%, and an overbought reading on the RSI during a downtrend is much lower than the 70% level.1
As you can see in the following chart, during a downtrend, the RSI would peak near the 50% level rather than 70%, which could be used by investors to more reliably signal bearish conditions. Many investors will apply a horizontal trendline that is between 30% and 70% levels when a strong trend is in place to better identify extremes. Modifying overbought or oversold levels when the price of a stock or asset is in a long-term, horizontal channel is usually unnecessary.
A related concept to using overbought or oversold levels appropriate to the trend is to focus on trading signals and techniques that conform to the trend. In other words, using bullish signals when the price is in a bullish trend and bearish signals when a stock is in a bearish trend will help to avoid the many false alarms the RSI can generate.
With a key focus on the bespoke ALPHA Wave this is as simple as notifying you of a potential reversal in a peak or dip. It can be used in any market direction with the foundation of the MFI being used as a trend filter, you don’t have to worry to much. Used in confluences with divergences (See below) this can be an extremely reliable tool. The signals will appear when it is heavily over stretched although the reversals can be used outside of the signals, again with confluence of Divergences and trend direction.
DIVERGENCESDivergences are a very basic way of looking at Price movement and RSI movement making a divergence in direction that often leads to a reversal. It is always advised to follow the divergences that are within the overbought and oversold zones to give a higher chance of reversal. These do not carry specific alerts or signals but are used to support other indicators.
Bullish divergences are, in essence, the opposite of bearish signals. Despite their ease of use and general informational power, trading oscillators tend to be somewhat misunderstood in the trading industry, even considering their close relationship with momentum. At its most fundamental level, momentum is actually a means of assessing the relative levels of greed or fear in the market at a given point in time.
Oscillators are most useful and issue their most valid trading signals when their readings diverge from prices. A bullishdivergence occurs when prices fall to a new low while an oscillator fails to reach a new low. This situation demonstrates that bears are losing power, and that bulls are ready to control the market again—often a bullish divergence marks the end of a downtrend.
Bearish divergences signify potential downtrends when prices rally to a new high while the oscillator refuses to reach a new peak. In this situation, bulls are losing their grip on the market, prices are rising only as a result of inertia, and the bears are ready to take control again.
Divergences, whether bullish or bearish in nature, have been classified according to their levels of strength. The strongest divergences are Class A divergences; exhibiting less strength are Class B divergences; and the weakest divergences are Class C. The best trading opportunities are indicated by Class A divergences, while Class B and C divergences represent choppy market action and should generally be ignored.
Class A bearish divergences occur when prices rise to a new high but the oscillator can only muster a high that is lower than exhibited on a previous rally. Class A bearish divergences often signal a sharp and significant reversal toward a downtrend. Class A bullish divergences occur when prices reach a new low but an oscillator reaches a higher bottom than it reached during its previous decline. Class A bullish divergences are often the best signals of an impending sharp rally.
Class B bearish divergences are illustrated by prices making a double top, with an oscillator tracing a lower second top. Class B bullish divergences occur when prices trace a double bottom, with an oscillator tracing a higher second bottom.
Class C bearish divergences occur when prices rise to a new high but an indicator stops at the very same level it reached during the previous rally. Class C bullish divergences occur when prices fall to a new low while the indicator traces a double bottom. Class C divergences are most indicative of market stagnation—bulls and bears are becoming neither stronger nor weaker.
With divergences, traders identify a rather precise point at which the market's momentum is expected to change direction. But aside from that precise moment, you must also ascertain the speed at which you are approaching a potential shift in momentum. Market trends can speed up, slow down or maintain a steady rate of progress. A leading indicator that you can use to ascertain this speed is referred to as the rate of change (RoC). RoC compares today's closing price to a closing price X days ago, as chosen by the trader:
Momentum is positive if today's price is higher than the price of X days ago, negative if today's price is lower and at zero if today's price is the same. Using the momentum figure calculated, the trader will then plot a slope for the line connecting calculated momentum values for each day, thereby illustrating in linear fashion whether momentum is rising or falling.
Similarly, the rate of change divides the latest price by a closing price X days hence. If both values are equal, RoC is 1. If today's price is higher, then RoC is greater than 1. And, if today's price is lower, then RoC is less than 1. The slope of the line that connects the daily RoC values graphically illustrates whether the rate of change is rising or falling.
Whether calculating momentum or RoC, a trader must choose the time window that they wish to use. As with most every oscillator, it is generally a good rule of thumb to keep the window narrow. Oscillators are most useful in detecting short-term changes in the markets, perhaps within a time frame of a week; while trend-following indicators are better employed for longer-term trends.
When momentum or RoC rises to a new peak, the optimism of the market is growing, and prices are likely to rally higher. When momentum or RoC falls to a new low, the pessimism of the market is increasing, and lower prices are likely coming.
When prices rise but momentum or RoC falls, a top is likely near. This is an important signal to look for when locking in your profits from long positions or tightening your protective stops. If prices hit a new high but momentum or RoC reaches a lower top, a bearish divergence has occurred, which is a strong sell signal. The corresponding bullish divergence is an obvious buy signal.
Divergent oscillators are powerful leading indicators that guide the trader on not only the market's future direction but also its speed. When combined with demonstrable divergences, momentum and RoC can precisely ascertain near the moment a market shifts direction.