The efficient trend-step indicator is a trend indicator that make use of the efficiency ratio in order to adapt to the market trend strength, this indicator originally aimed to remain static during ranging states while fitting the price only when large variations occur. The trend step indicator family unlike most moving averages has a boxy appearance and could therefore not be classified as smooth, this makes it an indicator relatively uninteresting to use as input for other non-trending indicators such as oscillators.
Today a channel indicator making use of the efficient trend-step is proposed, the indicator has an upper and a lower extremity who can be used for breakout or support and resistance methodologies, however we will see that the indicator is sometimes able to return accurate support and resistance levels.
The indicator has the same settings has the efficient trend step indicator, length control the period of the efficiency ratio, fast control the period of the rolling standard deviation used for trending states, slow control the period of the rolling standard deviation used for ranging states, fast should be lower than slow, if both are equal then the indicator is equal to the classical trend step indicator and length does no longer affect the indicator output. Lower values of fast/slow will make the indicator more reactive to small variations thus changing direction more often.
The color changes you can see on the indicator are changed depending on the prior direction took by the indicator output, if the indicator where higher than its precedent value, then the color will be blue until the indicator is lower than its precedent value. Those colors help you have an estimate of the current trend direction.
Channel Calculation And Role
The extremities made from the efficient trend step allow for more advanced trading rules, they can act as stop/target level and can also give a rough estimate of the current market volatility, with wider extremities indicating a more volatile market.
The extremities are made directly from the dev element used by the efficient trend-step, the upper extremity is made by summing the efficient trend step with the value of dev when the efficient trend step change, the lower extremity is made the same way but the value is subtracted instead.
Is it a weird choice ? It sure is strange to see such approach, the absolute rolling average error between the price and the efficient trend step could have been a logical measure but using dev instead is more efficient and also allow for a more adaptive approach which can benefit the support and resistance methodology, the last reason is because i didn't wanted to "denature" the trend-step signature of the indicator.
The figure above represent the measurement used for making the extremities (in green).
Since the previously described measure change only when the efficient trend step change, we can conclude that such measure is representative of a relatively large variation, since the efficient trend step aim to only change when a large variations appear.
We can see that the upper extremity acted as an accurate resistance in this upper variation of AMD,
Here as well, however like other bands indicators it is safer to take into account the current trend direction, a strong uptrend will have less difficulties crossing the upper extremity, therefore it might be better to rely on the support (lower extremity) on an up-trending market (indicator in blue), and on the resistance (upper extremity) on an down-trending market (indicator in orange).
The figure above show support and resistances signals, a cross represent a false signal, while green arrows represent correct ones with their respective direction.
The presented indicator add more possibilities to the interpretation of the efficient trend step, the extremities can act as stop/target level, however this use has to be controlled, and the level should be in accordance to your risk/reward ratio.
Showcasing another trend-step indicator was a real pleasure. Thanks for reading :)
Với tinh thần TradingView, tác giả của tập lệnh này đã xuất bản nó dưới dạng mã nguồn mở, vì vậy các nhà giao dịch có thể hiểu và xác minh nó. Chúc mừng tác giả! Bạn có thể sử dụng mã này miễn phí, nhưng việc sử dụng lại mã này trong một ấn phẩm chịu sự điều chỉnh của Nội quy nội bộ. Bạn có thể yêu thích nó để sử dụng nó trên biểu đồ.
Thông tin và ấn phẩm không có nghĩa là và không cấu thành, tài chính, đầu tư, kinh doanh, hoặc các loại lời khuyên hoặc khuyến nghị khác được cung cấp hoặc xác nhận bởi TradingView. Đọc thêm trong Điều khoản sử dụng.