Mean Deviation Index: ATR-Filtered Mean and Deviation Signals
Summary
The Mean Deviation Index (MDX) measures price distance from an adaptive mean while accounting for volatility. It builds the mean from an EMA whose responsiveness is adjusted using the standard deviation of ATR; the indicator then suppresses deviations that remain within an ATR-based threshold. Values beyond the threshold are shown as positive or negative, with background colors indicating price above or below the mean. Users can change the ATR multiplier and choose normalized or volume-weighted calculations.
The document describes two possible uses: treat changes in the directional background as trend signals, ideally alongside other indicators, or wait for a breakout direction to persist through a pullback and resume before entering. It also offers percentage display, optional levels, and alerts when the indicator crosses those levels. These are proposed interpretations, not tested performance claims: the document gives no results, risk controls, or evidence that either use is profitable. The pullback example is described inconsistently for a short, so traders should verify signal direction and rules before relying on it.
Key ideas
- MDX compares price with an adaptive EMA-based mean and accounts for volatility through ATR.
- The indicator only reports directional deviation after price moves beyond an ATR-scaled threshold.
- A volatility-sensitive adjustment to the EMA uses the standard deviation of ATR to alter its responsiveness.
- Possible applications include trend signals and entries after a directional breakout pulls back and resumes.
- Optional settings include volume weighting, percentage display, threshold levels, and crossing alerts; no performance evidence is provided.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.