Sagitta is an indicator the works to assist in the validation of potential long entries and to place stop-loss orders. Sagitta is not a "golden indicator" but more of a confirmation indicator of what prices might be suggesting.

The concept is that while stocks can turn in one bar, it usually takes two bars or more to signal a turn. So, using a measurement of two bars help determine the potential turning of prices.

Behind the scenes, Sagitta is nothing more than a 2 period stochastic which has had its values divided into five specific zones.

Dividing the range of the two bars in five sections, the High is equal to 100 and the Low is equal to 0.

The zones are:
20 = bearish (red) – This is when the close is the lower 20% of the two bars
40 = bearish (orange) – This is when the close is between the lower 20% and 40% of the two bars.
60 = neutral (yellow) – This is when the close is between the middle 40% - 60% of the two bars.
80 = bullish (blue) – This is when the close is between the upper 60% - 80% of the two bars.
100 = bullish (green) – This is when the close is above the upper 80% of the bar.

The general confirmation concept works as such:

When the following bar is of a higher value than the previous bar, there is potential for further upward price movement. Conversely when the following bar is lower than the previous bar, there is potential for further downward movement.
Going from a red bar to orange bar Might be an indication of a positive turn in direction of prices.
Going from a green bar to an orange bar would also be considered a negative directional turn of prices.

When the follow on bar decreases (ie, green to blue, blue to yellow, etc) placing a stop-loss would be prudent.

Maroon lines in the middle of a bar is an indication that prices are currently caught in consolidation.

Silver/Gray bars indicate that a high potential exists for a strong upward turn in prices exists.

Consolidation is calculated by determining if the close of one bar is between the high and low of another bar. This then establishes the range high and low. As long as closes continue with this range, the high and low of the range can expand. When the close is outside of the range, the consolidation is reset.

Signals in areas of consolidation (maroon center bar) should be looked upon as if the prices are going to challenge the high of the consolidation range and not necessarily break through.

The entry technique used is:
The greater of the following two calculations:
High of signal bar * 1.002 or High of signal bar + .03

The stop-loss technique used is:
The lesser of the following two calculations:
Low of signal bar * .998 or Low of signal bar - .03

IF an entry signal is generated and the price doesn’t reach the entry calculation. It is considered a failed entry and is not considered a negative or that you missed out on something. This has saved you from losing money since the prices are not ready to commit to the direction.

When placing a stop-loss, it is never suggested that you lower the value of a stop-loss. Always move your stop-losses higher in order to lock in profit in case of a negative turn.

Open-source script

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