SI (Swing index)
The Swing Index was developed by Wells Wilder to assess the direction of a price change and its strength in relation to price swings. The Swing Index uses data from the last two bars in order to determine a possible trend change over a longer period of time. Specifically, Swing Index helps identify moments when investors change their trading behavior - moments when price changes (previously aligned with price swings) begin to move in the opposite direction of swings when a previously strong and consistent group of investors (Bulls or Bears) becomes weaker and short-lived only. Since the Swing Index uses data from only two bars to determine the possible development of a longer trend, it mainly attracts short-term intraday traders who are most interested in short-term price fluctuations.
According to the Technical Analysis theory:
a buy signal can be considered when the Swing Index crosses over zero value - the trader can expect a short-term upward price movement - the price is not growing yet, but we have an upward swing;
a sell signal can be viewed when the Swing Index falls below zero - the trader can expect a short-term downward price movement - the price has not yet moved down, but we are starting to have a downward swing.
Calculation
The basic formula for the Swing Index is:
Swing Index = 50 * [ { Cy - C + 0.5(Cy - Oy) + 0.25(C - O) } / R ] * (K / T)
Where:
C = Today's closing price
L = Today's lowest price
O = Today's opening price
Cy = Yesterday's closing price
Ly = Yesterday's lowest price
Oy = Yesterday's opening price
Hy = Yesterday's highest price
K = the larger of either (Hy - C) or (Ly - C)
R = A variable based on the relationship between today's closing price and yesterday's high and low
To calculate R, determine the largest of:
Hу - C
Lу - C
Hу - Lу
If (1) is the largest, R = (Hу - C) - .5(Lу - C) + .25(C - O)
If (2) is the largest, R = (Lу - C) - .5(Hу - C) + .25(C - O)
If (3) is the largest, R = (Hу - Lу) + .25(C - O)
T = move limit in one direction
Main parameters
T - move limit value in one direction, default is 300.0
The indicator looks as follows on the chart:
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