Composite Market Disorder Index with Adaptive Volatility Scaling

Summary

The indicator combines three measures into a smoothed score intended to flag orderly versus irregular price behavior. Its sine-fit component compares deviations of price and a reference sine wave, while a two-lag linear prediction component measures forecast residuals. Both errors are normalized by price variance. A spectral proxy adds the relative variance of a fast price band versus a slower trend band.

An ATR-based window adjusts the smoothing length with volatility, and the final composite averages the three bounded component scores. The author suggests treating low readings as conditions that may suit trend or breakout approaches, and high readings as a cue for caution or reduced risk. The document provides the formulas and interpretation thresholds but no performance tests or independent evidence that the score identifies manipulation. The sine-wave premise and price-only inputs make the label “manipulation” stronger than what the calculations establish; the measure is best understood as a proposed disorder or noise filter.

Key ideas

• The composite averages sine-fit error, lag-based prediction error, and a fast-versus-slow spectral variance ratio.
• The first two error measures are normalized by price variance and bounded between zero and one.
• An ATR-derived window changes the smoothing horizon with market volatility.
• The author presents low scores as more structured and high scores as more unstable, but supplies no validation results.

Tags

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