The Nadaraya-Watson Oscillator (NWO) will give the same information as the Nadaraya-Watson Envelope, but as an oscillator off the main chart, by plotting the relationship between price and the Kernel and its bands. This also means that we can now detect divergences between price and the NWO.
You can see the relationship between the two here:
You can think of this indicator as the kernel envelope version of a Bollinger Band %B. In ranging markets the bands are perfect for mean reversion trades, but in certain situations the break of one of the bands can signal the beggining of a strong trend and price will remain close to the bands for a long period and will only give small pullbacks. As with any indicator, confluence with price and other tools must be taken into account.
Main Features
As with @jdehorty 's Envelope, you can change the following settings:
Lookback Window.
Relative Weighting.
The initial bar for the regression.
ATR period for the bands.
Inner and Outer Multiples for the bands.
I also added the following:
A middle band around the Kernel to filter out false crossovers.
A Hull Moving Average to smoothen out the movements of the oscillator and give extra confirmation of turnover points.
Colors
Some special things to note regarding the coloring:
The zero line features a gradient that changes color every time the Kernel slope changes direction.
The Oscillator plot has a gradient coloring that gets stronger the closer it gets to each of the bands.
Every time the oscillator crosses over/under the outer bands the background will be highlighted.
This is *really* great work interpreting the NW envelope and beautiful visualizations/gradients. Definitely a worthy contender for oscillator space on my charts. Thanks.
Something that might have potential as a scalping strategy is to wait for a cross between the NWO and its HMA after a touch of either extreme. Here is an example on SPY (2m chart), many quick countertrend scalps could be taken:
Allow me to say 'thank you' to a genuine person like you.
Black-Hawk2024
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Suggestions for next update: Make source tag available so we can change source as well. And in style we cant chose different colures or increase /decrease. I am colorblind so that would be helpful
FractalTrade_
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@TopG2023, I can add the source option for sure! Not sure what you mean about the colors though, since you can change them in the settings already.
Black-Hawk2024
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You just made the best Kernel osc out there. This one BEATS Boom Hunter X hands down. matching Hull with NW wow genius bro
FractalTrade_
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@TopG2023, Thanks!! Main credit goes to @jdehorty for the original bands indicator, I just figured out how to turn it into an oscillator off the chart, I like to keep my main chart clean to focus on price action :) The Hull MA really helps indeed!