Detecting Extreme Price Behavior and Trend Shifts Using Lowess Channel in Amibroker

Understanding market extremes and shifts in sentiment is crucial for short-term traders and positional players alike. Today, I’m sharing an advanced Amibroker AFL script built using Lowess Smoothing logic that helps:

• Spot extreme price zones (Overbought / Oversold)
• Detect transitions like “Falling from Overbought” or “Rising from Oversold”
• Visualize short-to-mid-term sentiment through trend shifts and RSI momentum
• Present real-time insight using a GFX Table Dashboard

Core Concept: What is Lowess?

LOWESS (Locally Weighted Scatterplot Smoothing) is a powerful technique for filtering noisy price data and understanding smoothed directional bias. By wrapping it with ATR bands, we can:

• Define overbought/oversold thresholds
• Capture the underlying trend without lag from moving averages
• Add contextual overlays like momentum and RSI smoothing

Key Features of the AFL

1. Lowess Channel with ATR Bands

• A regression-smoothed line plots the central price trend.
• Two outer bands (BandUpper2, BandLower2) derived using ATR define dynamic price envelopes.

2. Extreme Price Behavior Detector

The logic detects:

• When price enters extreme zones
• When it falls from Overbought
• When it rises from Oversold
• Or simply remains within a normal range

Each condition is color-coded:

3. Trend Reversal and Momentum Detector

• Detects slope change in the center line using a 3-bar reference
• Plots hollow star diamonds when trend color shifts
• Classifies trend states:
  • Uptrend Emerging, Downtrend Emerging, Trend Reversal, Stable Trend

4. Sentiment via HMA of RSI

• Uses a double-smoothed RSI to eliminate false whipsaws
• Highlights:
  • Bullish Bias (rising RSI)
  • Bearish Bias (falling RSI)
  • Neutral Bias (flattening RSI)

GFX Table: Your Real-Time Trading Dashboard

The script renders a floating GFX Table on the chart with live sentiment analysis:

This makes it incredibly intuitive for discretionary or systematic traders to make decisions at a glance.

AFL Source Code

//Rajandran R - Creator of OpenAlgo
//website - openalgo.in / marketcalls.in
//Lowess Channel with Trend Sentiment Detector
//Date - 29/03/2025


_SECTION_BEGIN("Lowess Channel");

/* === Chart Settings === */
SetChartOptions(0, chartShowArrows | chartShowDates);
_N(Title = StrFormat("{{NAME}} - {{INTERVAL}} {{DATE}} Open %g, Hi %g, Lo %g, Close %g (%.1f%%) {{VALUES}}", 
    O, H, L, C, SelectedValue(ROC(C, 1))));


/* === User Inputs === */
length = Param("Lowess Length", 20, 5, 100, 1);
multi = Param("Bands Multiplier", 1.5, 0.1, 10, 0.1);
rsilength = Param("Hull of RSI Length",7,1,100,1);
atrlength = Param("ATR Length",100,1,200,1);
bandwidth = 10;

/* === ATR Calculation === */
iatr = ATR(atrlength);

/* === LOWESS Smoothing Function === */
function LowessSmooth(src, len, bw) {
    result = Null;
    for (i = len; i < BarCount; i++) {
        sumW = sumWY = sumWXY = sumWX = sumWX2 = 0;
        for (j = 0; j < len; j++) {
            x = j;
            idx = i - j;
            weight = exp(-0.5 * (x / bw) * (x / bw));
            y = Nz(src[idx], 0);
            sumW += weight;
            sumWX += weight * x;
            sumWY += weight * y;
            sumWXY += weight * x * y;
            sumWX2 += weight * x * x;
        }
        meanX = sumWX / sumW;
        meanY = sumWY / sumW;
        beta = (sumWXY - meanX * meanY * sumW) / (sumWX2 - meanX * meanX * sumW);
        alpha = meanY - beta * meanX;
        result[i] = alpha + beta * (len / 2);
    }
    return result;
}

/* === Band Calculation === */
centerLine = LowessSmooth(C + (iatr * 0), length, bandwidth);
bandUpper1 = LowessSmooth(C + (iatr * multi), length, bandwidth);
bandUpper2 = LowessSmooth(C + (iatr * multi * 2), length, bandwidth);
bandLower1 = LowessSmooth(C - (iatr * multi), length, bandwidth);
bandLower2 = LowessSmooth(C - (iatr * multi * 2), length, bandwidth);

/* === Color Detection Logic === */
trendColor = IIf(Ref(centerLine, -3) < centerLine, colorLime,
             IIf(Ref(centerLine, -3) > centerLine, colorViolet, colorGrey50));

/* === Plot Bands === */
Plot(bandUpper2, "Upper Band 2", colorYellow, styleThick);
Plot(bandUpper1, "Upper Band 1", colorDarkGreen, styleLine);
Plot(centerLine, "Lowess Center", trendColor, styleThick);
Plot(bandLower1, "Lower Band 1", colorDarkGreen, styleLine);
Plot(bandLower2, "Lower Band 2", colorYellow, styleThick);

/* === Trend Color Change Detection and Diamond Plot === */
trendChange = trendColor != Ref(trendColor, -1);
shapeY = Ref(centerLine, -1); // Diamond at previous bar’s centerLine

PlotShapes(trendChange * shapeHollowStar, trendColor, 0, shapeY, 0);

candlecolor = IIf(high>bandUpper2 AND Close>bandUpper2, colorRed, IIf(low<bandLower2,colorGreen,colorDefault));


Plot(Close, "Close", candlecolor, styleNoTitle | ParamStyle("Style") | GetPriceStyle());


_SECTION_END();


////////////////////////////////////////////////////////////////////////////////
// This AFL code enhances the GFX table by adding dynamic background colors
// to the observation values based on Lowess Channel logic.
////////////////////////////////////////////////////////////////////////////////

_SECTION_BEGIN("GFX Table - Lowess Channel Summary (Colored)");

cellHeight = 34;
cellWidth = 220;
startX = 50;
startY = 70;

tableFillColor = colorBlack;
tableBorderColor = colorBlue;

function TableCell(text, col, row, bgColor, textColor)
{
    x1 = startX + (col - 1) * cellWidth;
    y1 = startY + (row - 1) * cellHeight;
    x2 = x1 + cellWidth;
    y2 = y1 + cellHeight;
    textX = x1 + 10;
    textY = y1 + 10;

    GfxSelectPen(tableBorderColor, 1);
    GfxSelectSolidBrush(SelectedValue(bgColor));
    GfxRectangle(x1, y1, x2, y2);

    GfxSetBkColor(SelectedValue(bgColor));
    GfxSetTextAlign(0);
    GfxSetTextColor(textColor);
    GfxTextOut(text, textX, textY);
}

// === Logic Derived from Lowess Channel ===

extremeUp = High > bandUpper2 AND Close >bandUpper2;
extremeDn = Low < bandLower2;

prevExtremeUp = Ref(extremeUp, -1);
prevExtremeDn = Ref(extremeDn, -1);

// Extended Extreme Price Behavior
extremeStatus = 
    WriteIf(extremeUp AND !prevExtremeUp, "Just Entered Overbought Zone",
    WriteIf(extremeDn AND !prevExtremeDn, "Just Entered Oversold Zone",
    WriteIf(!extremeUp AND prevExtremeUp AND Close < Ref(Close,-1), "Falling from Overbought",
    WriteIf(!extremeDn AND prevExtremeDn AND Close > Ref(Close,-1), "Rising from Oversold",
    WriteIf(extremeUp, "Above Upper Band (Overbought)",
    WriteIf(extremeDn, "Below Lower Band (Oversold)", "Normal Range"))))));

// Dynamic Cell Color Coding
extremeColor =
    IIf(extremeUp AND !prevExtremeUp, colorOrange,
    IIf(extremeDn AND !prevExtremeDn, colorBrightGreen,
    IIf(!extremeUp AND prevExtremeUp, colorPink,
    IIf(!extremeDn AND prevExtremeDn, colorAqua,
    IIf(extremeUp, colorRed,
    IIf(extremeDn, colorGreen, colorDarkGrey))))));


// Trend Detection and Reversal
rising = Ref(centerLine, -3) < centerLine;
falling = Ref(centerLine, -3) > centerLine;
trendReversal = trendColor != Ref(trendColor, -1);

trendShift = WriteIf(rising AND !falling, "Uptrend Emerging", 
               WriteIf(falling AND !rising, "Downtrend Emerging", 
               WriteIf(trendReversal, "Trend Reversal", "Stable Trend")));

trendColorCell = IIf(trendReversal, colorOrange, 
                     IIf(rising, colorLime, 
                     IIf(falling, colorViolet, colorDarkGrey)));


hrsi = HMA(RSI(rsilength),rsilength);
hrsi = 2*hrsi-50;

rise = hrsi >= Ref(hrsi,-1);
fall = hrsi < Ref(hrsi,-1);


// Sentiment View
sentiment = WriteIf(rise, "Bullish Bias", 
             WriteIf(fall, "Bearish Bias", "Sideways/Neutral"));

sentimentColor = IIf(sentiment == "Bullish Bias", colorDarkGreen,
                IIf(sentiment == "Bearish Bias", colorRed, colorGrey50));

// === Table Headers ===
TableCell("Market Insight", 1, 1, colorBlue, colorWhite);
TableCell("Current Observation", 2, 1, colorBlue, colorWhite);

// === Row 1 - Price Behavior
TableCell("Extreme Price Behavior", 1, 2, colorGrey40, colorWhite);
TableCell(extremeStatus, 2, 2, extremeColor, colorWhite);

// === Row 2 - Trend Reversal
TableCell("Trend Reversal / Momentum Shift", 1, 3, colorGrey40, colorWhite);
TableCell(trendShift, 2, 3, trendColorCell, colorWhite);

// === Row 3 - Sentiment
TableCell("Short-to-Mid Term Sentiment", 1, 4, colorGrey40, colorWhite);
TableCell(sentiment, 2, 4, sentimentColor, colorWhite);

_SECTION_END();

If you’re interested in customizing it for intraday timeframes, multi-timeframe overlays, or adding trading signals — feel free to request via comment.

Applications

• Reversal Zone Trading (mean-reversion)
• Trend Following with Confirmation
• Swing Trading Filters
• Sentiment-Driven Dashboards

Download & Usage

• Import the AFL into Amibroker
• Apply it on higher timeframes above hourly charts with reasonable amount of historical data.
• Adjust parameters like:
  • Lowess Length, ATR Period, RSI Hull Length
• Hover your select the candles over the charts to read the GFX summary live

Final Thoughts

This strategy is part of a broader initiative to build visual, informative dashboards for discretionary traders in AmiBroker. It’s clean, informative, and easy to extend into trade signals or automation.

Happy Trading!