Constructing a sell-relative-strength-index from the intrabar range ratio

A lookback average of the intrabar range ratio

The sell-relative-strength-index is a lookback average of each bar's absolute open-to-close range divided by that bar's absolute high-to-low range. The per-bar building block is the intrabar-range-ratio: absolute close minus open, divided by absolute high minus low, with a zero result when the high-low range is empty.

A default lookback of 20 bars is specified for that average. A bar with a zero high-low range contributes a zero ratio so the average remains defined.

The teaching premise is that the size of a later selloff is related to the size of previously accumulated profitable space, measured from the open-close span inside the high-low range. A conventional relative-strength-index, an oscillator of up versus down closes over a defined lookback, is used here only as the comparison baseline for the constructed sell-side reading.

Fixed bands that encode buy, sell, and hold

The oscillator is drawn with fixed reference levels at 0.38, -0.38, and 0, plus a near-zero band from -0.05 to 0.05 used as a hold coloring rule. Positive readings are colored as buy, negative readings as sell, and values inside the near-zero band as hold, so the construction itself encodes a three-state signal.

The over-profit-line is a fixed horizontal band on that plot. A move through the band is the chart condition that defines a buy or sell hypothesis. The sell-relative-strength-index is the lookback average plotted against those bands so a crossing can be treated as a buy, sell, or hold condition.

Labeled events on the illustrated charts

On the illustrated daily gold-miners leveraged ETF chart, crossings of the over-profit-line are labeled as buy and sell events. A later consolidation is labeled as a hold once price stops making those crossings. Those labeled crossings, and the later hold during consolidation, are the breakout-confirmation events: a cross of the over-profit-line, or a later hold while price consolidates, treated as a repeatable chart event that can be checked against subsequent price rather than accepted as a forecast.

On the illustrated daily QQQ chart, the constructed oscillator and a conventional relative-strength-index do not always fire together. One labeled buy appears on the constructed line without a relative-strength-index confirmation. One labeled sell appears after relative-strength-index has already left an overbought zone.

A conventional relative-strength-index remaining below an overbought threshold on the same QQQ example is presented as a missed short hypothesis that the constructed oscillator still flags, which makes the two constructions separately testable.