Wick-to-Body Ratio Trend Forecast | Flux Charts

10 jul 2023

The Wick-to-Body Ratio Trend Forecast Indicator aims to forecast potential movements following the last closed candle using the wick-to-body ratio. The script identifies those candles within the loopback period with a ratio matching that of the last closed candle and provides an analysis of their trends.

➡️ USAGE


Wick-to-body ratios can be used in many strategies. The most common use in stock trading is to discern bullish or bearish sentiment. This indicator extends candle ratios, revealing previous patterns that follow a candle with a similar ratio. The most basic use of this indicator is the single forecast line.

➡️ FORECASTING SYSTEM

This line displays a compilation of the averages of all the previous trends resulting from those historical candles with a matching ratio. It shows the average movements of the trends as well as the 'strength' of the trend. The 'strength' of the trend is a gradient that is blue when the trend deviates more from the average and red when it deviates less.

Chart: SPY 30 min; Indicator Settings: Loopback 700, Previous Trends ON

The color-coded deviation is visible in this image of the indicator with the default settings (except for Forecast Lines > Previous Trends ), and the trend line grows bluer as the past patterns deviate more.

➡️ ADAPTIVE ACCEPTABLE RANGE

The algorithm looks back at every candle within the loopback period to find candles that match the last closed candle. The algorithm adaptively changes the acceptable range to which a candle can differ from the ratio of the last closed candle. The algorithm will never have more than 15 historical points used, as it will lower its sensitivity before it reaches that point.

Chart: BTCUSD 5 min; Indicator Settings: Loopback 700

Here is the BTC chart on 7/6/23 with default settings except for the loopback period at 700.


Chart: BTCUSD 5 min; Indicator Settings: Loopback 200

Here is the exact same chart with a loopback period of 200. While the first ratio for both is the same, a new ratio is revealed for the chart with a loopback of only 200 because the adaptive range is adjusted in the algorithm to find an acceptable number of reference points. Note the table in the top right however, while the algorithm adapts the acceptable range between the current ratio and historical ones to find reference points, there is a threshold at which candles will be considered too inaccurate to be considered. This prevents meaningless associations between candles due to a particularly rare ratio. This threshold can be adjusted in the settings through "Default Accuracy".