[blackcat] L1 Enveloped Oscillator

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█ OVERVIEW
The script is an indicator named “[blackcat] L1 Enveloped Oscillator” (L1 EO) designed to plot various trend and oscillator values on a separate chart pane. It calculates multiple indicators such as trend, adjusted trend, oscillator, directional strength, and normalized oscillator, and uses these to detect potential buy and sell signals based on trend contractions, expansions, and divergences.

█ LOGICAL FRAMEWORK

Structure:
1 — Input Parameters: None are explicitly defined, but the script is parameterized within the function with fixed values for levels and periods.
2 — Calculations: The calculate_l1_enveloped_oscillator function computes multiple values including price bases, trend, oscillator, and adjusted trends. This function uses built-in Pine Script functions like ta.highest, ta.lowest, ta.ema, ta.sma, and math.max.
3 — Plotting: The calculated values are plotted on the chart using the plot function, with different colors and styles for visual distinction.
4 — Signal Detection: The script detects and labels potential buy and sell signals based on trend contractions, expansions, and divergences between the price and oscillator.
5 — Conditional Statements: Multiple if statements are used to determine when to place labels for buy and sell signals.

█ CUSTOM FUNCTIONS

• calculate_l1_enveloped_oscillator(high, low, close, open): Calculates various trend and oscillator values based on the input price data.
 — Parameters: high, low, close, open (price data).
 — Return Values: A tuple containing top_level, bottom_level, middle_level, adjusted_trend, trend, oscillator, directional_strength, normalized_oscillator, and adjusted_candle_trend.

█ KEY POINTS AND TECHNIQUES

• Advanced Pine Script Features: Utilizes built-in functions for technical analysis (ta.highest, ta.lowest, ta.ema, ta.sma, ta.crossover, ta.crossunder).
• Optimization Techniques: Uses fixed periods and levels for calculations, which can be adjusted for different market conditions.
• Best Practices: Clearly separates calculations and plotting, making the script modular and easier to maintain.
• Unique Approaches: Combines multiple indicators (trend, oscillator, directional strength) to detect complex market conditions like divergences and contractions/expansions.

█ EXTENDED KNOWLEDGE AND APPLICATIONS

• Modifications: Users can modify the levels (top_level, bottom_level, middle_level) and periods used in calculations to better suit specific asset classes or market conditions.
• Extensions: The script can be extended to include additional indicators or signals, such as RSI or MACD, to enhance its predictive power.
• Application Scenarios: Similar techniques can be applied in other trading strategies involving trend analysis and divergence detection, such as momentum trading or mean reversion strategies.
• Related Concepts: Users can explore other Pine Script concepts like alerts, backtesting, and optimization to fine-tune strategies based on historical data.