Trend Or Range ?

21 Des 2024

Are you uncertain whether the market is trending or stuck in a range? The "Trend or Range?" indicator is here to eliminate the guesswork by providing a structured, data-driven analysis of market conditions.

How It Works:
This indicator doesn't rely on a single metric; instead, it analyzes five core components of market behavior to provide two actionable scores: Trend Score and Range Score. Here's how each component is calculated and integrated:

1. NATR (Normalized ATR)
Purpose: Measures volatility relative to the current price. Higher values indicate active, trending markets, while lower values suggest quieter, range-bound conditions.

NATR = ATR / Close

ATR is the Average True Range over 14 periods (default setting).

2. ADX (Average Directional Index)
Purpose: Measures the strength of the trend. A higher ADX value indicates a stronger trend.
Explanation: ADX is calculated based on directional movement (+DI and -DI). It highlights the strength of the trend, regardless of direction.

3. Slope
Purpose: Tracks the rate of change in price over a fixed period (14 by default) to identify momentum strength. A steeper slope indicates stronger trends.

Slope = abs((Close - Close[14]) / 14)

This measures the absolute price change over 14 bars, normalized by time.

4. RSI Stability
Purpose: Measures the consistency of the RSI (Relative Strength Index) over time, highlighting mean-reverting behavior.

RSI Stability = stdev(RSI, 14)

This calculates the standard deviation of RSI values over 14 periods.

5. Deviation Index
Purpose: Quantifies the price's deviation from its 14-period simple moving average (SMA). This highlights overextension, which is common in range-bound markets.

Deviation Index = (Close - SMA(14)) / SMA(14)

Positive values indicate price above the SMA, while negative values show it below.

Scoring System
Trend Score Calculation
The Trend Score is a weighted sum of metrics that favor trending markets:

30% NATR: High volatility is a hallmark of trends.
30% ADX: A proven measure of trend strength.
40% Slope: Directly measures momentum.

Trend Score = (0.3 * NATR) + (0.3 * ADX) + (0.4 * Slope)

Range Score Calculation
The Range Score emphasizes mean-reverting behavior:

40% RSI Stability: Captures consistent RSI values common in ranges.
40% Inverse NATR: Low volatility favors range-bound markets.
20% Deviation Index: Measures overextension from the mean.

Range Score = (0.4 * RSI Stability) + (0.4 * (1 / NATR)) + (0.2 * Deviation Index)

What You See on the Chart

Table Display: A user-friendly table appears on the chart, showing:

• Real-time values of all five metrics.
  
• Calculated Trend and Range Scores.
  
• Color-coded signals:
  
• Green for dominant Trend Score.
  
• Red for dominant Range Score.
  
• Data Plots: Each metric is plotted in the data window for further analysis.