Indicator unearths hidden market insights

February 29, 2012 06:00 PM

Price range indicator

A new Daily Price Range Standard Deviation (DPR SD) indicator is shown in “Statistical indicator” (below) where it is applied to an intraday 10-minute E-mini bar chart. Its graph appears underneath the E-mini candlestick chart. DPR SD values are graphed as a continuously rising line of standard deviation values (z-scores). These indicate the current range of contract price based on a 400-period sample (the period length is configurable).

A DPR SD value less than zero indicates the day’s price range is less than the average price range. When the indicator plot reaches zero, the contract has met its average daily price range. Values above zero indicate the contract has exceeded its average daily price range.

On the E-mini contract candlestick chart, three values are printed: Average daily price range, the standard deviation of daily price range and the Coefficient of Variation (CV) of daily price range. The CV is the ratio of price range standard deviation to its average. As of Dec. 9, 2011, these values were: 18.91, 11.76 and 0.62. They change, modestly, from day to day as the market trades.

As the session progresses, the indicator plot has the following general behavior:

  1. At the open, its value typically is much less than 0, unless there is a significant opening gap.
  2. The indicator rises throughout the session. When it reaches the zero line, the average price range for the contract has been reached.
  3. When the indicator is above the zero line, price range is extended above its average value.
  4. When the market closes, the indicator provides the total price range, in standard deviations, of the session.

When implementing the DPR SD indicator, the issue of how to handle opening gaps must be addressed, specifically, whether an opening gap should be included or ignored in the session’s price range calculation. This is similar to the Welles Wilder Average True Range (ATR) consideration. The preference is to include opening gaps; however, some users will want to focus on price range activity that occurs just within the day session. For this reason, an ATR parameter is part of the indicator. With ATR = TRUE, the opening range will be included. With ATR = FALSE, the opening range will not be included. The default setting is ATR = TRUE.

The Dec. 10 session in “Statistical indicator” shows that the average daily price range was 18.93 with a standard deviation of 11.77. An opening gap down from the previous session was 1253.75 – 1238.25 = 15.50 points. The first 10-minute bar closed down an additional 5.75 points to 1232.50, making for first 10-minute bar opening range from the previous session of 15.50 + 5.75 = 21.25 points.

The DPR indicator gave a value of 0.20 standard deviations at its first 10-minute bar print, which is consistent: (0.20 x 11.77) + 18.93 = 21.28 points (roughly 21.25 points). Here we have used the formula x = zσ + μ to check that the DPR standard deviation output is consistent with price action.

By handling all the laborious price range calculations and providing a visual representation of price action, the DPR SD indicator assists the trader with an additional view of the market. TradeStation EasyLanguage source code for the indicator is provided available for download here .

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