Normalized Resonator [LuxAlgo]

The Normalized Resonator indicator provides a specialized bandpass oscillator designed to isolate specific market cycles while maintaining a normalized scale for overbought and oversold analysis.

🔶 USAGE

The indicator can be used to identify cyclical turns in the market by isolating a specific frequency (period) and filtering out noise. Traders can use the oscillator to spot potential reversals when the price reaches extreme levels or when the main line crosses its signal line.

🔹 Trend Identification

Beyond reversal signals, the oscillator serves as a momentum and trend filter. When the oscillator is sustained above the zero line, it indicates a bullish cycle where the isolated frequency is currently in an upward phase. Conversely, values below zero indicate a bearish cycle. The distance from the zero line represents the strength of the cycle relative to its recent historical peaks.

🔹 Filtering and Momentum

The "Bandwidth" setting is crucial for practical application. A lower bandwidth (e.g., 0.1 - 0.3) creates a sharper filter that is highly selective of the central period, which is useful for identifying very specific recurring cycles but may increase lag. A wider bandwidth (e.g., 0.5 - 0.8) allows more price movement through, making the oscillator more reactive to momentum shifts and broader market swings.

🔹 Trading Signals

The script features built-in signals that appear on the main chart to highlight potential exhaustion points:

• Bullish Reversal: Indicated by a green "▲" label below the price. This occurs when the oscillator crosses above the signal line while below the oversold threshold.
  
• Bearish Reversal: Indicated by a red "▼" label above the price. This occurs when the oscillator crosses below the signal line while above the overbought threshold.
  

🔹 Combining with Price Action

For the best results, traders should look for confluence between the resonator signals and price action structures. For example, a bullish crossover occurring at a major horizontal support level or a trendline adds significant weight to the signal.

In trending markets, the resonator can be used to "buy the dip" by looking for bullish signals that occur when the higher-timeframe trend is up, rather than attempting to catch every reversal in both directions.

🔶 DETAILS

The script is built upon a digital resonator filter, which is a type of second-order bandpass filter. Unlike standard oscillators that use moving average differences, a resonator is mathematically tuned to "vibrate" at a specific frequency (the Center Period).

🔹 Normalization

Standard bandpass filters often have varying amplitudes depending on market volatility, which makes static levels difficult to use. This script solves this by implementing a normalization process. It calculates the highest absolute peak of the filter output over a rolling lookback period.

By dividing the raw filter output by this peak, the oscillator is squeezed into a range typically between -1 and +1, allowing for consistent Overbought (OB) and Oversold (OS) levels regardless of the asset's price scale or volatility.

🔶 SETTINGS

• Center Period: The primary cycle length (in bars) the filter aims to isolate.
  
• Bandwidth: Determines the width of the passband. Lower values result in a very sharp, selective filter. Higher values allow more frequencies to pass.
  
• Lookback Multiplier: Sets the normalization window as a multiple of the Center Period. A value of 1.0 means the peak is searched for over a window equal to the Center Period.
  
• Signal Line Period: The smoothing length for the Signal Line (EMA).
  
• Overbought/Oversold: The threshold levels used to trigger the chart signals.
  
• Signal Size: Adjusts the visual size of the "▲" and "▼" labels on the chart.