ADI Oscillator

Created by ADI

NOTE: The ADI Oscillator should be used as part of a comprehensive trading strategy that includes other forms of analysis and consideration of market conditions. Always ensure proper risk management and consider using stop-loss orders and other protective measures to safeguard your investments.If you want to learn more about this script and how to use it join our discord community.

Version History:

• V1.0: Initial version combining multiple technical analysis calculations to form a simple and easy-to-read oscillator.

• V1.2: Adjustments made to the oscillator line color to match the zero line during squeeze conditions.

• V1.3: Updated calculations and added new zones.

• V1.4: Fixed the Oscillator not showing up on the 1-minute time frame.

• V1.5: Improved Squeeze Pro conditions adapted from Saty Phase Oscillator

• V1.6: Added toggle for additional extensions zones (Mainly have to turn on for futures)

• V1.7: Added toggle for fisher Transform arrows.

Features of the ADI Oscillator:

• EMA Crossover and Price Action: The oscillator uses a 48-period Exponential Moving Average (EMA48) as a baseline for trend determination. The main oscillator line colors green when the closing price is above EMA48, indicating an uptrend, and red when below, indicating a downtrend.

• Integrated Oscillator Line: Combines calculations from the Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), and a customized Fisher Transform. This integrated approach synthesizes these indicators to produce a single oscillator line, enhancing trend and momentum detection.

• Momentum Calculations: Employs double exponential smoothing on comparisons of current and previous closes to highlight short-term momentum shifts within the context of the broader trend.

• Squeeze Detection: Utilizes Bollinger Bands and Keltner Channels to identify squeeze conditions — periods of low volatility potentially followed by high volatility, signaling breakout or breakdown opportunities. Squeeze conditions change the zero line and oscillator line color to magenta.

• Overbought/Oversold Zones (Accumulation/Distribution Areas): Defines specific levels where market conditions are considered overbought or oversold, aiding in the identification of potential reversal points. These zones are plotted as horizontal lines at predefined values to indicate extreme market conditions. Added extra additional extensions for futures.

• Visual Indicators: The oscillator includes visual cues such as color changes.

• Fisher Transform Arrows: The Fisher Transform arrows are visual indicators used in the oscillator to highlight potential turning points in the market. It converts price data into a gaussian normal distribution, making it easier to identify overbought and oversold conditions. 

Usage of the ADI Oscillator:

1. Trend Identification:

   • Observe the color of the oscillator line. Green indicates an uptrend when the price is above the EMA48, and red indicates a downtrend when the price is below the EMA48.

   • Use these color changes as signals to adjust your trading strategy, considering buying in uptrends and selling or shorting in downtrends.

2. Momentum Analysis:

   • Monitor the integrated oscillator line that synthesizes RSI, MACD, and Fisher Transform data to identify momentum shifts. Look for movements away from the zero line to gauge strength in the current price trend.

3. Squeeze Detection:

   • Pay attention to periods marked by magenta on the zero line and oscillator line, indicating a squeeze condition. These are critical times where the market is expected to break out strongly.

   • Consider entry or exit strategies during these squeeze conditions based on subsequent price movement directions.

4. Overbought and Oversold Zones:

   • Use the horizontal lines marking accumulation and distribution zones to identify potential reversal points. These are particularly useful for contrarian investment strategies or confirming trend continuations.

   • Accumulation levels might suggest buying opportunities, while distribution levels can indicate potential selling points.

5. Visual Indicators:

   • Respond to visual cues like color changes and directional arrows for quick decision-making. These indicators help traders to swiftly recognize changes in trend and momentum, facilitating timely trading decisions.

6. Confirming Market Trends:

   • Employ the Fisher Transform within the oscillator for a clearer definition of market highs and lows. This can improve decision-making by highlighting turning points that may not be as obvious with traditional indicators.

7. Fisher Transform:

   • Arrow up (Green Arrow):
     - A potential bullish reversal. (Fisher Transform value shows a significant positive change, suggesting a transition from a downtrend to an uptrend.)

   • Arrow Down (Red Arrow):
     - A potential bearish reversal. (Fisher Transform value shows a significant negative change, suggesting a transition from an uptrend to a downtrend.)