Strength Indicator
I wanted an indicator that provides a view of the strength of the market. In particular I wanted it to capture the spikes that occur prior to trend direction changes.
The basic idea is an RSI accept instead of capturing the relative size of up and down moves it is calculated on how strong the high (push up) and low (push down) are from open.
The other difference is two sets of horizontal lines set at 30, 40, 50, 60 and 70. The inner two at 40 and 60 provide a channel between which the indicator moves when range bound. When the Price is bullish it moves between 50 and 70 and when Bearish 30 and 50.
Overbought and oversold when it hits a line. If the range bound then that means 40 and 60. When trending choose either the 50 and 70 pair or 30 and 50 pair.
I have also added a 4 point EMA as a signal line.
It works pretty well for my purposes. It tracks oversold and overbought signals generated by the stochastic, but has additional information regarding trend strength.
UpTick=High-Open
DownTick=Open-Low
//N a 12 point EMA for data collection.
Av1=ExponentialAverage[N](UpTick)
Av2=ExponentialAverage[N](DownTick)
//M as 9 point EMA for smoothing
Strength=ExponentialAverage[M](100*Av1/(Av1+Av2))
return Strength as “Strength”,30 as “Lower”, 40 as “Lower Channel”,50 as “Mid”,60 as “Upper Channel”,70 as “Upper”
July 16 2010 06:29 pm | Trading and Uncategorized
