OPEN-SOURCE SCRIPT
Shadow Index and Detrended Shadow Index
From Eugene Durenard (Advanced Automated Trading) this is an useful indicator to spot price consolidations and reversals.
"For nonlinear trends in time and areas of high probability, how are reversals detected? To gain intuition, first consider the difference, when looking at a bar chart, of a linear trend versus a congestion: One observes that, on the same time interval, there is a divergence between the degree of overlap of bars, as seen projected onto the price axis (as if a light was shining on them from the right). For a trending market, that overlap, or shadow, is lighter than for a congested market. This gives rise to the shadow index."
Has also good capabilities at predicting an increase of volatility.
"Now, when the market is in a linear trend or a congestion, the DS I will be high. On the other hand, it will be low when the market accelerates away from a linear trend. So a pattern of mean-reversion exists for the DS I but the times when it is low are rare, because so are accelerations."
"For nonlinear trends in time and areas of high probability, how are reversals detected? To gain intuition, first consider the difference, when looking at a bar chart, of a linear trend versus a congestion: One observes that, on the same time interval, there is a divergence between the degree of overlap of bars, as seen projected onto the price axis (as if a light was shining on them from the right). For a trending market, that overlap, or shadow, is lighter than for a congested market. This gives rise to the shadow index."
Has also good capabilities at predicting an increase of volatility.
"Now, when the market is in a linear trend or a congestion, the DS I will be high. On the other hand, it will be low when the market accelerates away from a linear trend. So a pattern of mean-reversion exists for the DS I but the times when it is low are rare, because so are accelerations."
Open-source script
In true TradingView spirit, the creator of this script has made it open-source, so that traders can review and verify its functionality. Kudos to the author! While you can use it for free, remember that republishing the code is subject to our House Rules.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Open-source script
In true TradingView spirit, the creator of this script has made it open-source, so that traders can review and verify its functionality. Kudos to the author! While you can use it for free, remember that republishing the code is subject to our House Rules.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.