Dow Theory Indicator
Draws trend lines based on highs and lows. It also calculates averages of these trend lines. This helps you give an indication of the trend. It also calculates a mean moving average for better analysis.
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This code is written in a programming language used for financial analysis and trading strategies. It's designed to create a visual indicator on a trading chart. The indicator is based on a concept called Dow Theory.
The code sets up various input parameters that can be customized by the user:
1. ‘Lookback Period’ represents how far back the indicator should look to calculate certain values.
2. ‘highavglength Period’ is the length of a rolling average calculated from the highs and lows of the main indicator.
3. ‘SMA Length 1’ to ‘SMA Length 6’ are lengths used for calculating different simple moving averages (SMA) of the closing prices.
4. The code then calculates the mean (average) of the calculated SMAs.
It then proceeds to calculate and plot some important levels on the chart:
1. The highest and lowest prices over the lookback period.
2. The most recent two highs and two lows.
3. The midpoint between the recent highs and lows.
4. A rolling average of these midpoints called the ‘high MA’ and ‘low MA’.
Finally, the code plots these levels on the chart:
1. It plots the midpoint between recent highs as a green line.
2. It plots the midpoint between recent lows as a red line.
3. It also plots the rolling averages of the high and low midpoints.
4. Additionally, it plots the calculated mean of the SMAs as a light-coloured line on the chart.
In summary, this code creates an indicator on a trading chart that visualizes different moving averages, recent highs and lows, their midpoints, and rolling averages of these midpoints. It aims to help traders identify potential trend changes and levels of support and resistance in the market.
The code sets up various input parameters that can be customized by the user:
1. ‘Lookback Period’ represents how far back the indicator should look to calculate certain values.
2. ‘highavglength Period’ is the length of a rolling average calculated from the highs and lows of the main indicator.
3. ‘SMA Length 1’ to ‘SMA Length 6’ are lengths used for calculating different simple moving averages (SMA) of the closing prices.
4. The code then calculates the mean (average) of the calculated SMAs.
It then proceeds to calculate and plot some important levels on the chart:
1. The highest and lowest prices over the lookback period.
2. The most recent two highs and two lows.
3. The midpoint between the recent highs and lows.
4. A rolling average of these midpoints called the ‘high MA’ and ‘low MA’.
Finally, the code plots these levels on the chart:
1. It plots the midpoint between recent highs as a green line.
2. It plots the midpoint between recent lows as a red line.
3. It also plots the rolling averages of the high and low midpoints.
4. Additionally, it plots the calculated mean of the SMAs as a light-coloured line on the chart.
In summary, this code creates an indicator on a trading chart that visualizes different moving averages, recent highs and lows, their midpoints, and rolling averages of these midpoints. It aims to help traders identify potential trend changes and levels of support and resistance in the market.