Overreaction indicator

Overreaction Indicator (OI)

Class: overreaction indicator
Trading type: intraday trading
Time frame: 1 day
Purpose: momentum/contrarian trading
Level of aggressiveness: standard

Overreaction Indicator is designed for intraday trading purposes. The indicator is based on the Overreaction Hypothesis. According to this hypothesis, after an abnormally strong rise/fall in price, the next day the contrarian price movement follows.

There are statistically significant differences between intraday dynamics on days with abnormal price changes and normal days respectively.

There is a strong momentum effect on days with abnormal price changes, i.e. prices tend to change only in the direction of the abnormal price changes during the whole day; in addition, usually the presence of an abnormal price movements becomes clear at the start of the US trading session.

During the Asian trading session a strong contrarian pattern is present (i.e., on the day after the overreaction prices tend to go in the opposite direction). Contrarian movement is limited in time, since usually it lasts only till the start of the European session.

There exist trading strategies that generate abnormal profits by exploiting the detected anomalies.

This indicator applies a dynamic trigger approach to detect daily abnormal price changes.

The indicator displays moments of market overreaction directly on the chart.

Parameters of the indicator

1. Averaging period (default value = 20) - period of indicator. It is used to define normal returns.

2. Number of Sigmas (number of standard deviations, default = 2) - Is used to detect abnormal returns. It defines levels of aggressiveness in trading signals. The bigger the value is the more conservative signals are generated

For the further information including the access to the indicator, please write in PM (private messages).
Invite-only script

Access to this script is restricted to users authorized by the author and usually requires payment. You can add it to your favorites, but you will only be able to use it after requesting permission and obtaining it from its author. Contact Trade24Fx for more information, or follow the author's instructions below.

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Thanks for sharing your indicator.

Trade24Fx punc369
@punc369, welcome!
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