Range Calculation:
The indicator first determines the distance between the upper and lower curved channels, known as the range. This range represents the overall volatility of the price within the given period.
Relative Position:
The next step involves calculating the relative position of the closing price within this range. This value indicates where the current price sits in relation to the overall range.
Normalization:
To assess the trend strength over time, the current range is normalized against the maximum and minimum ranges observed over a specified look-back period.
Trend Strength Calculation:
The final Trend Strength is calculated by multiplying the relative position by the normalized range and then scaling it to a percentage.
⚪ Adaptability vs. Fixed Structure
- Donchian Channels: Use a fixed period to plot straight lines based on the highest high and lowest low. This can be limiting because the channels do not adjust to volatility; they remain the same width regardless of how much or how little the price is moving.
- Curved Price Channels: Adapt dynamically to market conditions using the Average True Range (ATR) as a measure of volatility. The channels expand and contract based on recent price movements, providing a more accurate reflection of the market's current state. This adaptability allows traders to capture both large trends and smaller fluctuations more effectively.
⚪ Sensitivity to Market Movements
- Donchian Channels: Are less sensitive to recent price action because they rely on a fixed look-back period. This can result in late signals during fast-moving markets, as the channels may not adjust quickly enough to capture new trends.
- Curved Price Channels: Respond more quickly to changes in market volatility, making them more sensitive to recent price action. The multiplier setting further allows traders to adjust the channel's sensitivity, making it possible to capture smaller price movements during periods of low volatility or filter out noise during high volatility.
⚪ Enhanced Trend Strength Analysis
- Donchian Channels: Do not provide direct insight into the strength of a trend. Traders must rely on additional indicators or their judgment to gauge whether a trend is strong or weak.
- Curved Price Channels: Includes a built-in trend strength calculation that takes into account the distance between the upper and lower channels relative to the trendline. A broader range between the channels typically indicates a stronger trend, while a narrower range suggests a weaker trend. This feature helps traders not only identify the direction of the trend but also assess its potential longevity and strength.
⚪ Dynamic Support and Resistance
- Donchian Channels: Offer static support and resistance levels that may not accurately reflect changing market dynamics. These levels can quickly become outdated in volatile markets.
- Curved Price Channels: Offer dynamic support and resistance levels that adjust in real-time, providing more relevant and actionable trading signals. As the channels curve to reflect price movements, they can help identify areas where the price is likely to encounter support or resistance, making them more useful in volatile or trending markets.
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