Range Ratio as a Higher-Timeframe Momentum Exhaustion Filter

Summary

The Range Ratio compares the distance between the highest high and lowest low in a chosen period with the sum of each bar’s high-low range. A strongly directional move should produce a ratio closer to one because the net span approaches the accumulated bar ranges. The document recommends using the indicator on H4 or higher charts with short periods of three to five bars. It interprets readings above 0.7 as a sign that the move may lack further potential, with consolidation, retracement, or reversal possible.

Suggested uses include exiting at a candle close when the ratio signals limited remaining movement and filtering a lower-timeframe buy signal when the higher-timeframe reading exceeds the threshold. The author cautions that longer periods are less reliable for the intended short-term systems. These are qualitative claims illustrated by an EURUSD H4 example; no performance statistics, formal validation, or broader market tests are supplied, so the threshold should not be treated as a proven predictive rule.

Key ideas

• The ratio divides the period’s high-low span by the sum of individual bar ranges.
• The document recommends short periods on H4 or higher timeframes.
• Readings above 0.7 are presented as possible signs of consolidation, pullback, or reversal risk.
• The indicator can inform exits or filter lower-timeframe signals using a higher-timeframe reading.
• The suggested threshold and uses are not supported by reported performance tests.

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