Corrected QWMA (Quadratic Weighted Moving Average)

The Corrected QWMA (Quadratic Weighted Moving Average) indicator filters market noise by applying a significance-based correction process to a quadratic weighted moving average, providing a clearer view of trend direction through a "step-like" output.

Usage

The Usage section describes how the script can be used to identify market trends and potential reversal points. Users can interpret the indicator through its color-coded plot and floating levels to determine market sentiment.

• Trend Identification: The primary line changes color based on the selected "Coloring Type." A green line typically suggests bullish momentum, while a red line suggests bearish momentum.
• Correction Logic: The script evaluates the significance of price changes. If a change is deemed insignificant relative to the standard deviation of changes, the average remains flat, creating a "step" effect that helps ignore minor fluctuations.
• Floating Levels: These levels act as dynamic overbought and oversold thresholds. When the QWMA interacts with these levels, it can signal potential exhaustion or trend strength.
• Signal Interpretation:
  • Middle: Coloring and signals trigger based on the slope change of the average.
  • Level: Coloring and signals trigger when the QWMA crosses the outer floating levels.
  • QWMA: Coloring and signals trigger when the corrected value crosses the original QWMA value.

Details

The QWMA (Quadratic Weighted Moving Average) applies a power-based weighting to the lookback period, giving more emphasis to recent data points in a non-linear fashion. The "Correction" process differentiates this script from standard moving averages. It uses a standard deviation of change to determine if the current average value should update. If the squared difference between the previous corrected value and the current raw QWMA is less than the variance (standard deviation squared), the update is minimized or ignored.

Settings

Basic Settings

• Source: Determines the input data (e.g., Close, Open, High, Low) used for the calculation.
• MA Period: Sets the lookback period for the Quadratic Weighted Moving Average.
• MA Speed: Adjusts the exponent used in the quadratic weighting; higher values increase the weight of recent data.
• Correction Period: Controls the significance check. If set to < 0, correction is disabled. If set to 0, it matches the MA Period. Any other positive value uses that specific period for standard deviation calculation.

Floating Levels Settings

• Floating Levels Period: The lookback period used to determine the highest and lowest values for the floating bands.
• Floating Levels % Up: The percentage (0-100) used to calculate the upper boundary relative to the range.
• Floating Levels % Down: The percentage (0-100) used to calculate the lower boundary relative to the range.

UI Options

• Coloring Type: Choose between "Middle", "Level", or "QWMA" to determine the logic for color changes and signals.
• Color bars?: Toggles the coloring of price bars to match the indicator state.
• Show Floating Levels?: Toggles the visibility of the upper, lower, and median floating levels.
• Fill Floating Levels?: Enables or disables the background shading between the floating levels.
• Show signals?: Displays "L" and "S" shapes on the chart to indicate entry/exit points.

FAQ

How do I adjust the sensitivity of the correction? You can modify the "Correction Period" and "MA Speed." A higher MA Speed makes the average more reactive to recent price changes, while a larger Correction Period changes the threshold for what is considered a "significant" move.

Is this the same as a Step Moving Average? No. While the output may appear "step-like" due to the correction process, the underlying logic is based on statistical significance rather than a fixed price step or interval.

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.