Range expansion filter on multi-horizon averages

Separate readings for range and direction

The archive treats a quiet daily range as typical range-bound trade. A sharp expansion of the daily range relative to interday movement is treated as a possible supply-demand shift. That expansion is often, but not always, accompanied by higher volume.

True range is the one-bar range measure used for the session path, including gaps and limit moves against the prior close. Interday close change is the close-to-close displacement used when that session path is compared with overnight progress.

Building the range indicator

The range indicator is a smoothed oscillator that places the current true-range-to-close-change ratio on a bounded scale so unusually quiet or stressed readings can be flagged.

It is built in two stages. First a stochastic range rescales, over a short lookback, the true-range-to-close-change ratio into a bounded reading. When the interday close change is not positive, that stochastic is taken of true range alone. Exponential smoothing is then applied to the stochastic-range series to form the finished range indicator.

Illustrative settings use a short lookback for the stochastic range, a longer exponential smoother, and arbitrarily chosen quiet and stressed zones on the finished oscillator.

Low-zone and high-zone cues

A low zone is an arbitrarily chosen quiet threshold on the range indicator. A rising cross of that threshold is treated as possible trend initiation. A high zone is an arbitrarily chosen stressed threshold. A cross of that threshold is treated as possible trend exhaustion.

Low and still-rising oscillator readings are intended as a start-of-trend cue that can be paired with a separate trend measure. High readings are intended as a possible end-of-trend or return-to-range cue.

A stacked exponential baseline

A baseline directional engine buys when a short exponential average of the close crosses above a medium one, with the close also above both that medium average and a longer exponential average. Short rules are the mirror image.

The moving-average stack is that short, medium, and longer set of averages used together so a stance needs alignment across more than one horizon. Exponential smoothing is applied to the close to form those averages. The baseline was applied to currency futures series on continuous data.

Range as an entry trend filter

As an entry filter, the range indicator must be higher than on the prior bar and must cross above a predefined quiet zone, in addition to the exponential-average alignment. The same permission logic is applied on the short side.

That pairing is the trend filter. It allows or blocks a directional signal according to whether the range oscillator is leaving a quiet zone.

Range as an exit overlay

As an exit overlay, a stressed-zone cross of the range indicator is added to a minimum holding period and a short-versus-longer exponential-average reversal. The range reading is not used as a standalone exit.