MTC Wavetrend Oscillator

WaveTrend Oscillator – Explanation & Trading 

The WaveTrend Oscillator (WT) is a popular technical indicator used to detect trend reversals, overbought/oversold zones, and divergences.
It is based on smoothed averages of the Typical Price (High + Low + Close / 3), which helps to filter out noise and create smooth oscillations.

The indicator consists of:

• WT1 (green line): the main oscillator, reacts quickly to market changes
• WT2 (red line): the smoother signal line
• Histogram (green/red): shows momentum by measuring the difference between WT1 and WT2
• Level lines at ±53 and ±60: mark overbought and oversold 

Settings

• Channel Length (default: 10): Controls how sensitive the oscillator is.
• Average Length (default: 21): Smoothing length for WT1.
• Signal Length (default: 4): Smoothing length for WT2.

Default settings usually work well across most markets. Smaller values make the indicator more sensitive, larger values make it smoother.

How to use the WaveTrend

WT1 / WT2 Crossovers

• Buy signal: WT1 (green) crosses WT2 (red) from below.
• Sell signal: WT1 (green) crosses WT2 (red) from above.
  These signals are most reliable when they occur in the extreme zones (±60).

Overbought & Oversold Levels

• WT1 > +60: the market is considered overbought, correction likely.
• WT1 < -60: the market is considered oversold, rebound likely.
• Between ±53 and ±60: early warning zones.
  Typical use: Enter long trades when WT1 turns up from below -60, enter short trades when WT1 turns down from above +60.

Divergences

• Bullish divergence: price makes lower lows, WT1 makes higher lows → possible upward reversal.
• Bearish divergence: price makes higher highs, WT1 makes lower highs → possible downward reversal.
  Divergences are often stronger than simple crossovers.

Histogram as Momentum 

• Green histogram: bullish momentum (WT1 above WT2).
• Red histogram: bearish momentum (WT1 below WT2).
• Around the zero line: neutral zone.
  The histogram can help detect momentum changes before WT1 and WT2 cross.

Example Strategies:

Classic Crossover Setup

1. WT1 crosses WT2 upward.
2. Both lines are below -53 (ideally -60).
3. Entry: go long on the confirmed crossover.
4. Exit: when WT1 crosses back down or moves above +60.

 Divergence Setup

1. Price makes a new low, WT1 does not → bullish divergence.
2. Entry: go long when WT1 crosses WT2 upward.
3. Exit: when WT1 returns to the neutral zone (between -53 and +53).

Momentum Confirmation with Histogram

1. Histogram switches from red to green → bullish momentum.
2. WT1 still below WT2 → aggressive early long entry possible.
3. Exit: when histogram turns red again.

Tips & Notes

• WaveTrend is a counter-trend indicator → works best in sideways markets and around trend reversals.
• In strong trends, overbought/oversold zones can remain for longer periods.
• Best results when combined with:
• Trend filters (e.g. 200 SMA, 50 EMA)
• Chart patterns (double tops, double bottoms)
• Volume indicators
• Higher timeframes (H1, H4, D1) are more reliable and produce fewer false signals.