Regression Deviation Heat Map for Market Momentum and Volatility

Summary

This indicator calculates a rolling linear regression of the midpoint of each bar, then measures how far the close sits from that line in standard-deviation units. It clips the normalized deviation and colors bars along a cool-to-warm gradient, with a gauge showing the current reading. A switch controls whether the regression line is displayed. The author describes warm extremes as strong upward momentum or potentially overheated conditions, and cool extremes as subdued or downward conditions.

The indicator can help visualize whether price is extended relative to its recent fitted trend, but it does not define entry, exit, or position-sizing rules. The accompanying text suggests looking for extreme deviations and using the gauge to adapt trading decisions, including possible tops or bottoms on weekly charts. These are interpretations rather than validated signals: no study, performance data, or threshold-testing evidence is presented, and the description advises using other analysis alongside it. The regression length and heat sensitivity can be adjusted, but the normalization still uses a fixed 200-bar standard deviation.

Key ideas

• A rolling regression line provides a reference for measuring price deviation.
• The indicator normalizes closing-price deviation by standard deviation and maps it to a color scale.
• A gauge summarizes the current reading, while an input controls display of the regression line.
• Extreme readings are presented as possible momentum or overextension cues, not confirmed reversals.
• The document offers no performance validation, and its normalization uses a fixed lookback.

Tags

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