RedK Compound Ratio Moving Average (CoRa_Wave)

The RedK Compound Ratio Moving Average (CoRa_Wave) indicator provides a highly responsive moving average that utilizes a consistent step ratio in its weighting logic to minimize lag and track price swings closely.

Usage

The Usage section focuses on identifying price trends and swings with minimal delay. Because the script uses a compound ratio weighting mechanism, it is significantly more reactive than traditional Simple Moving Average (SMA) or Weighted Moving Average (WMA) calculations.

• Trend Identification: The line changes color based on its slope. A green line indicates an upward trend, while a red line indicates a downward trend.
• Swing Tracking: Traders can use the CoRa_Wave to track price movements closely. A common strategy involves using two CoRa_Wave lines of the same length—one applied to the "Open" price and one to the "Close" price—to identify short-term trend shifts.
• Crossovers: The indicator can be used in crossover strategies against other moving averages or price action to identify entry and exit points.
• Responsiveness Tuning: By adjusting the "Comp Ratio Multiplier," users can increase the aggressiveness of the average, making it more sensitive to the most recent price data.

Details

The CoRa_Wave utilizes a weighting system where weights increase in a "logarithmically linear" fashion. Unlike a standard WMA where the ratio between sequential weights is inconsistent, the CoRa_Wave ensures the "step ratio" between weights remains constant. This is achieved through a compound ratio formula:

1. Compound Weight Ratio: $r = (A/P)^{1/t} - 1$
2. Weight at Time t: $A = P(1 + r)^t$

This approach effectively reduces the "tail weight" (the influence of older data points) which is the primary cause of lag in most moving averages. By assigning exponentially higher weights to recent data points in a mathematically consistent way, the indicator achieves high responsiveness without the erratic behavior often found in other low-lag filters.

Settings

General Settings

• Source: Determines the price data used for the calculation (default is HLC3).
• Length: The lookback period for the moving average calculation.
• Comp Ratio Multiplier: Adjusts the aggressiveness of the weighting. A value of 0 results in a Simple Moving Average (SMA), while values between 1 and 5 significantly increase responsiveness to recent price changes.

Smoothing

• Auto Smoothing: When enabled, the script automatically calculates a smoothing factor based on the square root of the length to balance responsiveness with clarity.
• Manual Smoothing: Allows the user to manually define the smoothing period (WMA) applied to the raw compound ratio calculation if "Auto Smoothing" is disabled.

FAQ

How do I use the CoRa_Wave for trend reversals?

You can monitor the color changes of the plot or the slope of the line. A crossover of the price above the CoRa_Wave often signals a bullish shift, while a crossunder signals a bearish shift.

What is the advantage of Compound Ratio over EMA?

While an EMA reduces lag by giving more weight to recent data, the ratio between its weights is not as mathematically consistent across the entire length as the CoRa_Wave. The CoRa_Wave allows for a more aggressive reduction in "tail weight," resulting in less lag for the same period length.

How can I access this indicator?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.