Intermarket Correlation Oscillator (ICO)

Intermarket Correlation Oscillator (ICO) - Description
The Intermarket Correlation Oscillator (ICO) is a custom indicator for TradingView that helps you analyze the relationship between the price movements of two financial instruments. It calculates the correlation between the chart’s primary symbol (e.g., the stock or asset you’re viewing) and a secondary symbol (e.g., SPY for the S&P 500). The indicator displays this correlation as an oscillator, which moves between -1 and +1, helping you visualize how closely the two assets move together over time.
This guide explains how the indicator works in simple steps, its settings, and how to interpret its output. It’s designed for educational purposes to assist you in understanding market relationships, not as trading advice.
What Does the Indicator Do?
Measures Correlation: The ICO calculates the correlation coefficient between the closing prices of two assets over a specified number of bars (lookback period).
A value near +1 means the assets move in the same direction.
A value near -1 means the assets move in opposite directions.
A value near 0 means little to no relationship.
Visualizes the Correlation: The correlation is plotted as a line (oscillator) in a separate panel below your chart.
Highlights Key Levels:
Overbought Level (default: +0.8): Indicates a strong positive correlation.
Oversold Level (default: -0.8): Indicates a strong negative correlation.
Midline (0): Represents no correlation.
Zones: Shaded areas highlight when the correlation is above the overbought level or below the oversold level.
Labels and Alerts: The indicator adds labels on the chart when the correlation crosses key levels and provides alert conditions for potential notifications.
How to Use the Indicator
Step 1: Add the Indicator to Your Chart
Open TradingView and load a chart for any symbol (e.g., AAPL, BTCUSD).
Click the Indicators button at the top.
Search for Intermarket Correlation Oscillator (ICO) (or the name you’ve given it).
Click to add it to your chart. It will appear in a separate panel below the price chart.
Step 2: Configure the Settings
When you add the indicator, you can customize its inputs:
Secondary Symbol: Choose the asset to compare with the chart’s symbol (default: SPY, the S&P 500 ETF). For example, enter “BTCUSD” to compare Bitcoin or “GLD” for gold.
Correlation Lookback Period: Set the number of bars to calculate correlation (default: 20). A higher number smooths the oscillator, while a lower number makes it more sensitive.
Overbought Level: Define the threshold for strong positive correlation (default: +0.8).
Oversold Level: Define the threshold for strong negative correlation (default: -0.8).
Show Midline: Check to display the zero line (default: enabled).
Show Overbought/Oversold Zones: Check to highlight zones above +0.8 or below -0.8 (default: enabled).
To adjust these, double-click the indicator’s name on the chart and modify the settings in the pop-up window.
Step 3: Understand the Output
Blue Line: The oscillator shows the correlation value, ranging from -1 to +1.
Red Dotted Line: Marks the overbought level (default: +0.8).
Green Dotted Line: Marks the oversold level (default: -0.8).
Gray Dashed Line: The midline at 0 (if enabled).
Shaded Areas: Red shading above +0.8 or green shading below -0.8 (if zones are enabled).
Labels:
“OB” (Overbought) appears when the oscillator crosses above the overbought level.
“OS” (Oversold) appears when the oscillator crosses below the oversold level.
Boundaries: Solid lines at +1 and -1 show the maximum and minimum correlation values.
Step 4: Set Up Alerts
You can create alerts for specific events:
Click the Alert button (bell icon) in TradingView.
Choose Intermarket Correlation Oscillator (ICO) as the condition.
Select from the following alert types:
Overbought Alert: Triggers when the oscillator crosses above the overbought level.
Oversold Alert: Triggers when the oscillator crosses below the oversold level.
Bullish Correlation: Triggers when the oscillator crosses above the midline (0).
Bearish Correlation: Triggers when the oscillator crosses below the midline (0).
Set your preferred notification method (e.g., email, pop-up).
Click Create to activate the alert.
How to Interpret the Indicator
The ICO helps you understand how two assets move relative to each other:
High Positive Correlation (near +1): The assets tend to move in the same direction. For example, if the oscillator is above +0.8 for AAPL vs. SPY, AAPL is closely following the S&P 500’s movements.
High Negative Correlation (near -1): The assets move in opposite directions. For example, if the oscillator is below -0.8 for USDJPY vs. GLD, when the dollar strengthens, gold may weaken.
No Correlation (near 0): The assets move independently, with no clear relationship.
The overbought and oversold levels highlight extreme correlation states, which may indicate potential shifts in the relationship between the assets. For example, an extremely high positive correlation might weaken over time.
Note: This indicator does not predict price movements or guarantee trading outcomes. Use it as a tool to study market relationships alongside other analysis methods.
Example Use Case
Suppose you’re analyzing Tesla (TSLA) and want to see how it correlates with the S&P 500 (SPY):
Set the chart to TSLA.
Add the ICO indicator and keep the secondary symbol as SPY.
Observe the oscillator:
If it’s above +0.8, TSLA is moving strongly with the S&P 500.
If it’s below -0.8, TSLA is moving opposite to the S&P 500.
If it’s near 0, TSLA’s movements are unrelated to the S&P 500.
Use labels and alerts to track when the correlation becomes unusually strong or weak.
Important Notes
Educational Tool: The ICO is designed to help you study the correlation between assets. It does not provide buy or sell signals or guarantee profits.
Customize for Your Needs: Adjust the lookback period, overbought/oversold levels, and secondary symbol to match your analysis style.
Combine with Other Tools: Use the ICO alongside other indicators or chart patterns for a broader market perspective.
Data Dependency: The indicator relies on price data for both symbols. Ensure the secondary symbol (e.g., SPY) has available data on your chart’s timeframe.
TradingView Compliance: This indicator follows TradingView’s rules by avoiding performance claims, financial advice, or misleading statements.
Troubleshooting
Indicator Not Showing: Ensure the secondary symbol is valid (e.g., “SPY” exists on your exchange) and has data for the selected timeframe.
Alerts Not Triggering: Verify that the alert conditions are set correctly and that your TradingView account supports alerts.
Oscillator Looks Flat: Try reducing the lookback period for more sensitivity or check if the two assets have sufficient price variation.