Simple Trend Analysis using Moving Average Disparity

The Simple Trend Analysis using Moving Average Disparity indicator measures the percentage deviation of price from a triple exponential moving average across multiple timeframes to identify trend momentum and potential reversals. It provides a layered visual representation of price disparity, helping traders determine the strength and direction of the market trend relative to historical averages.

Usage

The Usage section describes how the script can be used, examples should be provided in this section. This section also focuses on how main settings affect the indicator interpretation and output.

Trend Identification

The indicator plots three distinct MAD (Moving Average Disparity) areas: a fast, medium, and slow length. When the disparity values are above the zero line, it indicates bullish momentum as price is trading above its smoothed average. Conversely, values below zero indicate bearish momentum. Traders can look for alignment across all three lengths to confirm a strong directional trend.

Crossovers and Momentum Shifts

Crossovers between the different MAD lengths or crosses over the zero line can serve as signals for changing momentum. For example, when the fast MAD line (Length 0) crosses above the medium MAD line (Length 1), it suggests an acceleration in bullish momentum.

Overextended Moves

Because the indicator measures the percentage difference between price and its average, extreme peaks or valleys in the area plots can highlight overextended market conditions. When the disparity reaches historically high or low levels, it may signal that the price is due for a mean reversion or a period of consolidation.

Details

This tool is based on the concept of Moving Average Disparity, which quantifies the distance between the current price and a Moving Average. This specific implementation utilizes a Triple Exponential Moving Average (T3-style smoothing) to calculate the base mean.

The calculation follows these steps:

1. A triple EMA of the source price is calculated for the specified length.
2. The difference between the price and this smoothed average is divided by the average value from $n$ bars ago.
3. The resulting percentage is then smoothed again using an EMA to produce the final disparity value.

By applying this calculation to three different lengths simultaneously, the indicator provides a multi-period perspective on price deviation, effectively acting as a smoothed momentum oscillator.

Settings

• Length 0: Defines the lookback period for the fastest MAD calculation, typically used for short-term momentum.
• Length 1: Defines the lookback period for the medium-term MAD calculation.
• Length 2: Defines the lookback period for the slowest MAD calculation, providing a baseline for the primary trend.

FAQ

What does a zero-line cross signify? A cross above the zero line indicates that price has moved above its triple-smoothed moving average, suggesting a bullish shift. A cross below the zero line suggests a bearish shift.

How do the different lengths interact? The interaction between the lengths shows the relationship between short-term and long-term momentum. When the fast length (shorter) is above the slow length (longer), the trend is accelerating upwards.

How can I access the Simple Trend Analysis using Moving Average Disparity? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.