Average Penetration: Counting Price Crossings of a Moving Average

Summary

The Average Penetration indicator counts, over a configurable lookback window, how often candle lows fall below a simple moving average and how often candle highs rise above it. The example settings use a 100-period average and a 63-bar lookback, described as roughly three months. The original idea counted closes crossing the average; this adaptation uses highs and lows instead.

The two counts are interpreted as a directional filter: more high penetrations suggest bullish conditions, while more low penetrations suggest bearish conditions. Convergence between the counts may indicate that a run is weakening. A companion histogram encodes a bullish or bearish state and flips when the count gap begins to contract. The document supplies indicator logic but no backtest, market sample, or performance measurements. The signal is therefore a technical interpretation rather than evidence of predictive power; users would need to test parameter choices and reversal behavior across instruments and regimes.

Key ideas

• The indicator counts high and low penetrations of a simple moving average over a chosen lookback window.
• More high penetrations are treated as bullish, while more low penetrations are treated as bearish.
• Convergence in the counts is presented as a possible sign that a trend is losing strength.
• A histogram variant changes its directional state when the gap between counts contracts.
• The document provides no empirical performance evidence, so the signal requires independent testing.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.