Normalized Candlestick Bars with Rolling Volatility Thresholds

Summary

This indicator rescales each candlestick around its opening price, displaying the open at zero and the high, low, and close as offsets from the open. Candle direction is marked with different colors. It also calculates thresholds at positive and negative multiples of the standard deviation of close-to-open changes over a configurable lookback period. The stated purpose is to make candle sizes comparable on a constant scale and help flag unusually large moves that may be followed by a return toward the mean.

The document provides indicator logic and example parameter settings, but no chart examples, backtest, or performance evidence. A large candle is only a volatility signal; the text does not establish that it reliably predicts mean reversion. Results may depend on the lookback and threshold settings, and the measure uses close-to-open changes rather than the full high-low range.

Key ideas

• The indicator plots candle prices as offsets from each bar’s open.
• It uses rolling standard deviation thresholds on close-to-open changes to flag unusually large candles.
• Candle color distinguishes positive from negative close-to-open movement.
• The stated interpretation is that abnormal candle sizes may precede a return toward the mean.
• The document provides no empirical validation, and the thresholds depend on configurable parameters.

Tags

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