Alexander Elder's new indicator - Market Thermometer

["Barry Silberman" <barry@xxxxxxxxxxxxxxxxxxxxx>]

To List,

Another new indicator in Alexander Elder's new book "Come Into My Trading Room" is called "Market Thermometer".

The Market Thermometer is a measure of volatility.  The formula is:

           Temperature = the greater of either (high - high[1]) or (low[1] - low)

1- Market temperature is always a positive number reflecting the absolute value of either the upward or downward extension of yesterday's range, whichever is greater.  
2- plot temperature as a histogram.
3- plot a MA of temperature on the same chart as the histogram.    He suggest starting with a 22 day EMA for testing.
4- You can use this indicator for 4 trading signals:
     A)  The best time to enter a new position is when mkt thermometer falls below its MA.
     B)  exit positions when Mkt Thermometer rises to triple the height of it's moving average.
     C)  get ready for an explosive move if the Thermometer stays below its MA for 5-7 trading day.
     D)  Mkt thermometer can help to set profit target for next trading day.


My EasyLanguage code for the indicator is as follows:

 
{Barry Silberman's version of Market Thermomenter from Alexander Elder.  >From "Come Into My Trading Room" page 162 }

 Input: length(22), threshhold(3);

Variable:  temperature(0), avgtemp(0);

 value1 = AbsValue(high-high[1]);

value2 = AbsValue(low[1] - low);

 temperature = maxlist(value1, value2);

avgtemp = average(temperature, length);

 If temperature < avgtemp then

plot1(temperature, "mkt temp",  green,  default,  0);

 If temperature > avgtemp then

plot2(temperature, "mkt temp",  magenta,  default,  0);

 If temperature > avgtemp*threshhold then

plot2(temperature, "mkt temp",  red,  default,  3);

 plot3(avgtemp, "avg temp");

 plot4(avgtemp*threshhold, "avg temp");

Attachment: Description: "ELDER MARKET TEMPERATURE.ELD"