LBR 3/10 'Sardine' Oscillator (ATR-Normalized)

3 paź

LBR 3/10 Oscillator - Short-Term Momentum Indicator

The LBR 3/10 "Sardine" Oscillator is a short-term momentum indicator developed by Linda Bradford Raschke. This ATR-normalized version provides cross-market comparability and consistent extreme levels across all timeframes and asset classes.


What is the LBR 3/10 Oscillator?

The LBR 3/10 is designed to capture very short-term momentum shifts by measuring the difference between a 3-period and 10-period moving average. Named after Linda Bradford Raschke's "Trading Sardines" book, this oscillator excels at identifying rapid momentum changes and potential reversal points.

Formula: [MA(3) - MA(10)] / ATR(10) × 100

Where MA can be either Simple Moving Average (SMA) or Exponential Moving Average (EMA).


Why ATR Normalization?

Problem with Traditional Oscillators:
Traditional momentum oscillators produce values that vary dramatically across different markets and time periods. A reading of 5 might be extreme for one asset but insignificant for another.

Solution:
ATR normalization divides the raw momentum value by the Average True Range, creating standardized readings that are:

• Comparable Across Markets: Same interpretation whether analyzing stocks, forex, commodities, or crypto
  
• Comparable Across Time: Readings maintain consistent meaning regardless of price levels
  
• Universal Extreme Levels: The ±125 levels work consistently across all assets and timeframes
  

Statistical Research

Extensive statistical analysis across multiple markets identified the ±125 extreme levels:

• +125 Level: Reached approximately 4% of the time (extreme bullish momentum)
  
• -125 Level: Reached approximately 2% of the time (extreme bearish momentum)
  

These statistically-validated levels provide objective definitions for overbought and oversold conditions, eliminating subjective interpretation.


Key Features

Core Components

• LBR 3/10 Line: Main oscillator showing normalized short-term momentum
  
• Signal Line: Smoothed moving average of the oscillator (default: 9-period)
  
• Extreme Levels: Horizontal lines at ±125 marking statistical extremes
  
• Zero Line: Separates bullish and bearish momentum regimes
  

Visual Elements

• Blue Line: LBR 3/10 oscillator (main momentum line)
  
• Red Line: Signal line (smoothed moving average of oscillator)
  
• Fill Area: Light blue shaded region between oscillator and signal line
  
• Background Zones: Light red (overbought above +125) or light green (oversold below -125)
  
• Horizontal Lines: Gray dashed lines at +125, -125, and 0 (zero line solid)
  
• Divergence Markers: Green/red circles marking price/oscillator divergences
  
• Signal Crosses: Small green/red triangles marking oscillator/signal line crossovers
  
• Pullback Markers: Yellow diamond shapes with white "↑PB" or "↓PB" text for first pullback signals
  
• Std Dev Bands: Orange circles marking statistical extreme levels (optional, disabled by default)
  

Advanced Features

• MA Type Selection: Choose between SMA or EMA for both oscillator and signal line
  
• Standard Deviation Bands: Optional adaptive extreme levels based on statistical volatility
  
• Pullback Detection: Identifies high-probability counter-trend entries during established trends
  
• First Pullback Filter: Noise reduction system that highlights initial pullback after trend change
  

Trading Applications

1. Extreme Level Reversals
When the oscillator reaches ±125, it indicates stretched momentum conditions:

• Above +125: Overbought - watch for bearish reversal signals
  
• Below -125: Oversold - watch for bullish reversal signals
  

2. Signal Line Crossovers

• Bullish Cross: Oscillator crosses above signal line (momentum shift up)
  
• Bearish Cross: Oscillator crosses below signal line (momentum shift down)
  

3. Zero Line Crosses
Signal line crossing zero indicates trend regime changes:

• Cross Above 0: Transition to bullish trend
  
• Cross Below 0: Transition to bearish trend
  

4. Divergence Trading

• Bullish Divergence: Price makes lower low, oscillator makes higher low
  
• Bearish Divergence: Price makes higher high, oscillator makes lower high
  
• Best used in combination with other momentum indicators for confirmation
  

5. Pullback Strategy (High-Probability Setup)

• Uptrend Pullback: Signal line positive + oscillator crosses below (buy opportunity)
  
• Downtrend Pullback: Signal line negative + oscillator crosses above (sell opportunity)
  
• First Pullback: Initial counter-trend signal after trend change (highest probability)
  

6. "Anti" Setup
Linda Bradford Raschke's classic setup:

• Wait for extreme reading (±125)
  
• Enter on first pullback signal in opposite direction
  
• Captures momentum exhaustion reversals
  

Comprehensive Alert System

Extreme Level Alerts

• Crossed above +125 (overbought)
  
• Crossed below -125 (oversold)
  

Divergence Alerts

• Bullish divergence detected
  
• Bearish divergence detected
  

Signal Cross Alerts

• Bullish cross (oscillator above signal)
  
• Bearish cross (oscillator below signal)
  

Trend Change Alerts

• Signal line crossed above zero (trend change to bullish)
  
• Signal line crossed below zero (trend change to bearish)
  

Pullback Alerts

• Pullback in uptrend (potential buy)
  
• Pullback in downtrend (potential sell)
  
• FIRST pullback in uptrend (high-probability buy)
  
• FIRST pullback in downtrend (high-probability sell)
  

Settings & Parameters

LBR 3/10 Settings

• Fast MA Length: Short-term period (default: 3)
  
• Slow MA Length: Baseline period (default: 10)
  
• ATR Length: Volatility normalization period (default: 10)
  
• MA Type: SMA or EMA selection
  
• Extreme High Level: Overbought threshold (default: 125)
  
• Extreme Low Level: Oversold threshold (default: -125)
  

Signal Line

• Show Signal Line: Enable/disable display (default: true)
  
• Signal Line Length: Smoothing period (default: 9)
  

Divergence Detection

• Show Divergences: Enable/disable detection (default: true)
  
• Divergence Lookback: Pivot detection period (default: 5)
  

Standard Deviation Bands

• Show Std Dev Bands: Enable/disable adaptive levels (default: false)
  
• Std Dev Multiplier: Band width adjustment (default: 1.5)
  
• Std Dev Length: Calculation period (default: 100)
  

Best Practices

Trending Markets

• Focus on pullback signals in direction of trend
  
• Use first pullback filter for highest-probability entries
  
• Watch for extreme levels as profit-taking zones
  

Ranging Markets

• Trade reversals at extreme levels (±125)
  
• Use divergences with additional momentum indicator confirmation
  
• Avoid signal line crosses near zero (low-quality signals)
  

Multi-Timeframe Analysis

• Higher timeframe: Identify trend direction (signal line above/below zero)
  
• Lower timeframe: Time precise entries using pullback signals
  
• Confirmation: Use additional momentum indicators for signal validation
  

Risk Management

• Reduce position size at extreme levels (increased reversal risk)
  
• Use ATR-based stops (e.g., 2× ATR from entry)
  
• Exit on opposite extreme level or signal line zero cross
  

Chart Legend - Visual Signal Guide

Lines and Fills

• 🔵 Blue Line: LBR 3/10 oscillator value
  
• 🔴 Red Line: Signal line (9-period MA of oscillator)
  
• 💠 Light Blue Fill: Area between oscillator and signal line (visual momentum gauge)
  

Background Colors

• 🟥 Light Red Background: Extreme overbought zone (LBR > +125)
  
• 🟩 Light Green Background: Extreme oversold zone (LBR < -125)
  

Horizontal Reference Lines

• ➖ +125 (Gray Dashed): Overbought extreme level
  
• ➖ 0 (Gray Solid): Zero line - trend separator
  
• ➖ -125 (Gray Dashed): Oversold extreme level
  

Signal Markers

• 🟢 Green Circle: Bullish divergence detected (price lower low, oscillator higher low)
  
• 🔴 Red Circle: Bearish divergence detected (price higher high, oscillator lower high)
  
• ▲ Green Triangle Up: Bullish signal cross (oscillator crosses above signal line)
  
• ▼ Red Triangle Down: Bearish signal cross (oscillator crosses below signal line)
  
• Yellow Diamond "↑PB": First pullback in uptrend (high-probability buy setup)
  
• Yellow Diamond "↓PB": First pullback in downtrend (high-probability sell setup)
  

Combining with MACD-V+ Indicator

LBR 3/10 and MACD-V+ work together as a powerful two-timeframe momentum system:

Indicator Roles

• MACD-V+: Strategic direction (12-26 period) - identifies market regime and lifecycle state
  
• LBR 3/10: Tactical timing (3-10 period) - pinpoints precise entry and exit moments
  

Key Principles

• Strategic Filter: MACD-V+ determines IF you should trade (market regime)
  
• Tactical Timing: LBR 3/10 determines WHEN to enter (precise timing)
  
• Confirmation Reduces Risk: Trade only when both indicators agree
  
• Respect Lifecycle Changes: Exit when MACD-V+ state changes against your position
  

Methodology

The LBR 3/10 indicator implements statistical analysis and volatility normalization techniques to create a universal short-term momentum tool. This approach enables consistent interpretation across all markets and timeframes.

The indicator implements:

• ATR-based normalization for cross-market comparability
  
• Statistical extreme level validation (±125 levels)
  
• Noise reduction through first pullback filtering
  
• Dual MA type support (SMA/EMA) for flexibility
  
• Standard deviation bands for adaptive threshold levels
  

LBR 3/10 provides traders with a precise tool for short-term momentum analysis and tactical entry timing. Combined with proper risk management and multi-timeframe analysis, it offers objective signals for both trend-following and reversal trading strategies.

This indicator is designed for educational and analytical purposes. Past performance does not guarantee future results. Always conduct thorough research and consider consulting with financial professionals before making investment decisions.

4 paź

Informacje o Wersji

LBR 3/10 'Sardine' Oscillator normalization is done by Alex Spiroglou.

Source: Alex Spiroglou, MACD-V Research (CMT Award 2022), Section 6.1, p.39