This indicator try to show the amount on uncertainty that exist by plotting a 3-days moving average of the difference between the 'close' and 'ohlc4', which is compared to a 20-days Bollinger Band with a standard deviation of one.
This menas that when the 3-day curve is above the upper limit, the Uncetainty is higher than it has been during 84% of the last 20 day period (and vice versa for the lower limit).
By using Open,High,Low,Close you get four opinions of what the price should be for the current period. If there is a difference between 'close' and 'ohlc4' there seem to exist an uncertainty if the closing price is correct.
Can we say anything about direction? I don't think so; either the 'close king' has to listen to its 'people' and move toward 'ohlc4', or the other way around.
A way to see if the uncertainty increases over time could be to see if: abs(close[1] - ohlc4[1]) < abs(close - ohlc4) ,which say that we are more uncertain this period than the in previous one.
And I guess, with increased uncertainty comes 'fear' of loosing money.
I did some simple manual backtesting, taking position every time it gave signal, result: 15 trades , +19.57% profit , on average: +1.3% profit with a position length average of 4 days :-)
kruskakli
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@kruskakli, and I see a type in the description. It should say: abs(close[1] - ohlc4[1]) < abs(close - ohlc4)
kruskakli
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@kruskakli, whaat? the left/right brackets disapears !?
MartinWeb
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@kruskakli, could you explain how you make use of it? do you only look at it at the daily chart? because you are talking of 3 days and 20 days.