Motion Smoothness Index: Comparing Price Residual and Total Variation

Summary

The Motion Smoothness Index is presented as a trend metric for classifying price behavior as smooth or rough. It is calculated as the standard deviation of price residuals divided by the standard deviation of price itself, and is said to lie approximately between zero and one. The suggested interpretation is that readings below 0.5 indicate smoother movement, while readings above that threshold indicate rougher movement.

The description cautions that the length parameter affects reliability: longer lengths make rough price behavior harder to detect. It suggests that the indicator’s direction or running mean may still offer information, while retaining 0.5 as the recommended detection threshold. No empirical validation, asset-specific guidance, or rules for turning the measure into trades are provided, so the threshold should be treated as the author’s heuristic rather than a demonstrated universal boundary.

Key ideas

• The index divides the standard deviation of price residuals by the standard deviation of price.
• The proposed reading is smooth below 0.5 and rough above 0.5.
• The indicator is described as having an approximate range from zero to one.
• Longer length settings may reduce its ability to detect rough price behavior.
• The text offers no empirical validation or complete trading strategy.

Tags

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