ST_Trend_Reversal

2016년 3월 22일

STRONG TREND REVERSAL INDICATOR

The code is the percentage difference between the spot price of a given financial asset and its 200-day MA of that period. My standard setup is Daily, and I think it's got very good predictive power at that timeframe.
It can be read in two ways:
1. Values extremely above or below the 200-period MA present chances of buying/selling agains the prevailing trend.
2. Values closely above or below the 200-period MA are make-or-break market periods, where a medium-term trend becomes evident. Breaks above or below the MA are associated with strong chances of directional movements. But it's not fool-proof as false breaks have become commonplace nowadays.

Other way to use it is as confirmation of breakdowns: For example, an asset that loses its 200-day MA and then can't rally above it becomes exposed to steep losses afterwards.

It's also helpful to use in volatility trading: the closer the asset goes to its MA, the lower goes implied vol, and thus better opportiunities to be long volatility on those occasions where direction is hard to predict.

STRI = close/(200dMA)

Values over 100 indicate percentage premiums of spot vs its moving average.
Values below indicate percentage discounts of spot vs its moving average.