The main purpose of the is to determine the strength and direction of a trend, which it does by comparing the current price to the prices within a user-defined window of historical prices.
In the input menu, the user defines the starting and ending period. The current price is then compared to each historical price. If the current price is greater than the given historical price, then the is incremented, while it is decremented if it is below the given historical price. values fluctuate between a maximum of 100 and a minimum of -100, with 100 meaning that the current price is greater than each historical price in the window and a value of -100 meaning the inverse is true.
We then use the same process to calculate the trend score by passing in to the 'getTrendScore' function. Lastly, the indicator also also calculates a 'volume-weighted trend score'. This is simply the average of the price trend score and the trend score. It is not plotted by default, but users can set the input option to true in the input menu and it will be plotted as a yellow line (as seen in the bottom chart).
The trend scores for price are plotted as a histogram. We've summarized the meaning behind its color changes below:
-If ( == 100)
then color = dark green
-if ( < 100 and is increasing)
then color = light green
-if ( > 0 and is DECREASING)
then color = pink
-if ( < 0)
then color = red
The trend score is plotted as a blue line. We felt that using a similar coloring system for the trend scores would over-crowd the chart and take away from the simplicity that makes this indicator useful. The volume-weighted trend score is plotted as a yellow line.
The main price bars change color based on the price trend score to make the values easier to visualize as well.
This is a pretty versatile indicator. We summarized the ways in which traders can use it:
-Enter Long Positions when the trend score crosses zero from negative to positive territory.
-Exit Long Positions when the trend score was previously 100 and begins decreasing (ie bar color changes from dark green to pink).
-Spot divergences when price trend score is 100 or relatively high and the trend score decreases significantly.
-Identify divergences when price trend score is relatively low and trend score is increasing.