The confirmation oscillator type is the main oscillator in the indicator and is based on the same methodology used by the confirmation signals in the Lux Algo Premium, and aims to show the variations of both the bullish and bearish market participants.
The confirmation oscillator consists of two lines, a bull line (in blue when the gradient is off), and a bear line (in red when the gradient is off). A rising bull line means buyers are gaining protagonism, the same logic is applied with the bear line.
The oscillator can detect the current trend in the price, with an uptrend detected when the bull line is above the bear line (gradient in green/blue), and a down-trend when the bear line is above the bull line (gradient in red).
While this is the main way to interpret the confirmation oscillator, it is also possible to use it in order to detect divergences.
The normalized oscillator type is a normalized version of the confirmation bull line, in a range [0,100]. The oscillator is accompanied by one overbought (80) and one oversold (20) level.
The normalized oscillator can be used like the confirmation oscillator, with a value of the normalized oscillator under 50 meaning that the bull line is under the bear line. It is also possible to detect divergences with the price.
One can make use of the overbought and oversold levels, buying when the oscillator crosses over the overbought level, and selling when it crosses under the oversold level.
It is possible to smooth the two previous oscillators using different smoothing methods, these includes:
Exponential smoothing (EMA)
Triangular smoothing (TMA)
Hull smoothing (HMA)
Lux smoothing (Lux)
EMA by default. The degree of smoothness provided by each method can be controlled by the confirmation smoothing setting, with a higher value returning smoother results (14 by default). Each method is further described below:
The exponential smoothing method makes use of an exponential moving average to smooth the oscillator. This method is relatively reactive but might still preserve some noisy variations of the oscillator.
The triangular smoothing method makes use of a triangular moving average to smooth the oscillator. This method is the smoothest one available but is also the less reactive one.
The Hull smoothing method makes use of a Hull moving average to smooth the oscillator. This method is the most reactive one available.
The Lux smoothing method is an adaptive smoothing method exclusively developed for Luxalgo indicators. This method aims to provide a good amount of smoothness without introducing excessive lag.