This indicator belongs to the class of oscillators but differs from them in a non-standard form of calculation. In general terms, you can read about it in this review, but I will dwell a little more on how the coefficient value is built.
The indicator uses a nonparametric method for determining the relationship between events. Each event is assigned a rank, which determines the degree of its importance. In Forex, it looks like this:
- SpearmanRankCorr compares two similar sites. In the parameters, the number of candles for analysis is set, according to their data then the moving one will be built. For example, 10 candles are set in the parameters. The indicator finds two areas in which the model formed by these 10 candles is relatively the same. There is a version of the indicator where the current period of 10 candles is compared with the same previous period.
- Each candle is assigned a rank from 1 to 10. The lower the closing price of the candle, the lower it’s rank. A candle whose closure price from the analyzed interval is the least has a rank of “1”, a candle with a maximum close price of “10”.
- For each pair of candles, the indicator calculates the difference in ranks. For example, if the first candle of the first interval has a rank of “3”, the first candle of the second interval has a rank of “2”, the difference is “-1”.
- Each of the 10 differences is squared and added up.
- The final formula looks like this: 1-6 * the sum of the squares of the differences / (N * (N ^ 2-1))), where N is the number of paired observations. In this case, N = 10.
If the coefficient value is 0.3 or less, then the communication level is weak, 0.4 – 0.6 – the relationship is moderate, 0.7 and above – a strong correlation. It is logical that if the current candlestick pattern of 10 candles has a close relationship with a similar section in history, then it is logical to assume that the 11th candle of the current period will most likely repeat the candle of the previous interval.
This is just a description of the method for calculating the correlation, which was the basis of the SpearmanRankCorr indicator. And reviews about him are not bad. This strategy proposes the use of the H1 timeframe, the currency pair is EUR / GBP and two SpearmanRankCorr.
- RangeN = 10 (orange line) and = 20 (blue line). The number of candles by which the indicator value is calculated.
- CalculatedBars = 0. This is the number of candles that are searched for in order to compare them with the current one. The value “0” is a calculation for all candles of the loaded quotes. This is the best option, but it overloads the processor.
- Max range = 0. Parameter of limiting the number of candles of the compared period.
- Direction = true. The main or mirror display of the indicator on the chart, i.e. sorting the ranks in descending or ascending order.
- Levels: 0.9 and -0.9.
Conditions for opening a long position:
- The orange line of the indicator (10) crosses the blue (20) from the bottom up, while remaining below the level of -0.9.
The only condition. On the next candle, open a deal, stop length – 20-30 points. The target profit is 10 points, after which you can either exit the market or insure the position with trailing.
Since the periods for both indicators are different, the levels for them will also be slightly different. Therefore, the intersection is monitored visually.
Conditions for opening a short position:
The orange line of the indicator crosses the blue from top to bottom, being located above the level = 0.9.
The conditions for opening transactions are similar.
It is undesirable to open transactions in the last hours of Friday, the first hours of Monday and at the time of publication of statistics. The reason is high volatility and following other patterns. Signals are relatively rare, so you can try to run it on other pairs. You can lower levels, that is, look for intersections in areas above 0.8 or below -0.8. Experiments are welcome.