Correlation Confluence Trend Indicator

2024년 11월 22일

[u]Correlation Confluence Trend Indicator[/u]

Overview
The Correlation Confluence Trend Indicator combines exponential moving averages (EMAs) and statistical correlation measures to identify high-confidence trend alignments between an asset and a benchmark. By filtering signals through correlation strength, this indicator highlights opportunities when the asset and benchmark move together. In other words, it defines a trend and then uses correlation strength and the trend of a second asset to identify high-confidence trends.

Key Features

• Dual EMA Trend Analysis:
  Calculates fast and slow EMAs for both the asset and the selected benchmark (e.g., SPY) to identify bullish and bearish trends.
  
• Correlation Strength Filtering:
  Evaluates correlation between the asset and benchmark, identifying stronger-than-average relationships based on the mean and standard deviation.
  
• Background Color Coding:
  - Green: Strong correlation, both asset and benchmark bullish.
  - Aqua: Weak correlation, both asset and benchmark bullish.
  - Red: Strong correlation, both asset and benchmark bearish.
  - Fuchsia: Weak correlation, both asset and benchmark bearish.
  - Orange: Strong correlation, benchmark bullish, asset bearish.
  - Yellow: Weak correlation, benchmark bullish, asset bearish.
  - Purple: Strong correlation, benchmark bearish, asset bullish.
  - Lime: Weak correlation, benchmark bearish, asset bullish.
  
• Visual Trend Indicators:
  Plots fast and slow EMAs for the asset, dynamically colored based on aggregate trend signals. The color of this corresponds to the main trend signal.

Inputs

• Benchmark Symbol: Symbol of the benchmark asset to compare against.
  
• Fast EMA Length: Period for the fast EMA calculation.
  
• Slow EMA Length: Period for the slow EMA calculation.
  
• Correlation Length: Number of bars for correlation calculation.
  
• Correlation Mean Length: Number of bars for mean and standard deviation calculation.
  
• Std Dev Multiplier: Multiplier for standard deviation to define correlation strength. When the correlation is Std Dev Multiplier standard deviations above the mean, it counts as a strong correlation.
  
• Set Background Color: Toggle background coloring on or off.
  

Notes
This indicator is primarily designed for trend-following strategies. By combining trend analysis and correlation filtering, it ensures that signals occur during aligned market conditions, reducing false signals.

Before incorporating this indicator into your trading strategy:

• Always backtest on historical data to evaluate its performance before committing capital.
  
• Use proper risk management to control position sizes and mitigate potential losses.
  
• Remember that no indicator guarantees success. I'm quite proud of this one, but it's not the holy grail.