Trend Bar Dow Theory V-1.0

2023년 11월 13일

The indicator is designed to signal the presence of a trend bar with reduced profit-taking the following day. Below, I explain the logic that I have defined for this first version.

The guidelines I provided are as follows: We identify a trend bar, if it sets a market change, between opening and closing, equal to or greater than 50 pips. This first guideline is used to find a day with good liquidity, which usually leads to a trend bar.

If the first guideline is met, the indicator should change the bar color to white. This way, we can proceed to the second guideline, to detect the presence of reduced profit-taking.

The second guideline should indicate the presence of reduced profit-taking, as explained by Dow Theory, to find a trend context with potential to exploit. Therefore, the second guideline involves coloring the bars near the trend bars in grey, if they have a range equal to or less than 30 pips.

Dow Theory states that a market in trend measures reduced profit-taking, within 33%, up to a maximum of 50% compared to the previous trend bar, but I have not yet been able to make Pine Script calculate the percentage value. If you have any suggestions, I would be grateful.