[EDU] Close Open Estimation Signals (COE Signals)

The [EDU] Close Open Estimation Signals (COE Signals) indicator provides a swing-trading framework that identifies trend shifts and potential reversal points by analyzing the cumulative difference between closing and opening prices. This tool aims to filter market noise and offer a simplified view of price momentum relative to historical volatility.

Usage

The Usage section describes how the script can be used to identify market trends and entry points. The indicator primarily generates Buy and Sell labels based on calculated momentum shifts.

• Trend Identification: When the core COE value crosses above the zero level, it indicates the start of an uptrend. Conversely, a cross below zero suggests a downtrend.
• Volatility Reversals: The script calculates the volatility of the COE (v_coe) and subsequent derivatives (VVCOE and VVVCOE). Crossings of these values over zero are used to pinpoint potential market lows (reversals to the upside) or highs (reversals to the downside).
• Market Context: This indicator is most effective in high-liquidity markets characterized by strong trending behavior or wide sideways ranges. To avoid repainting, it is recommended to observe signals on bar closes.

Details

The Close Open Estimation (COE) is based on the sum of (Close - Open) values over a user-defined lookback period. This concept is conceptually similar to the RSI but focuses on the internal structure of the candle body rather than just the close-to-close change. By applying multiple layers of EMA smoothing to the velocity of these changes, the script derives signals that aim to beat traditional indicators like the QQE in specific market conditions.

Settings

COE Settings

• Source: Choose between "Classic" (standard sum of close-open) or "EMA-smoothed" (uses EMA data to provide a cleaner calculation base).
• Lookback: The number of previous bars used to calculate the COE sum. Lower values provide faster signals but may increase noise.
• Smoother period: The EMA period applied to the COE and its volatility derivatives to filter out garbage signals.
• EMA period: The smoothing period used for the source data when the "EMA-smoothed" mode is selected.

FAQ

How do I interpret the Buy and Sell labels?

Buy and Sell labels are generated when the second-order volatility of the COE (vCoeEntry) crosses the zero line, signaling a shift in momentum that often precedes a price trend.

What is the difference between Classic and EMA-smoothed modes?

The Classic mode uses raw price data (Close - Open), while the EMA-smoothed mode applies an exponential moving average to the open price before calculation, which helps in reducing "garbage" signals during high volatility.

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.