Measuring Candle Direction Strength with the ms-Candle Index

Summary

The ms-Candle Index estimates the direction and strength of each price bar using its range, body, and possible gaps. It is presented as a continuation of an earlier candle indicator, motivated by the limits of judging direction from open and close prices alone. The calculation first estimates minimum, maximum, and typical candle sizes from a rolling quote window, then uses those statistics to assess each bar. Large gaps are judged against the estimated maximum candle size, a simpler proxy than the price-deviation channel the author says would be preferable.

The index is dimensionless: positive values indicate upward movement and negative values indicate downward movement. Its magnitude reflects movement strength relative to the statistical estimate; optional normalization places values within a range from minus one to one. A histogram uses colors to show direction and whether the index is strengthening or weakening, while moving averages can smooth the index and its changes. These are empirical indicator descriptions, not evidence of predictive power; the document supplies no trading rules or performance results.

Key ideas

• The index estimates each candle’s direction and strength from its range, body, and gaps.
• Its rolling statistics estimate minimum, maximum, and typical candle sizes.
• Positive values indicate upward movement, while negative values indicate downward movement.
• Optional normalization scales the index to a range from minus one to one.
• Histogram colors distinguish direction from changes in the index, and moving averages can smooth its readings.
• The document describes the calculation but gives no performance evidence or trading rules.

Tags

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