Description
The Spearman study is a technical indicator used for evaluation of trend strength and turning point detection. This study calculates Spearman's rank correlation coefficient in order to reveal correlation between actual price changes and extremely strong trend. The Spearman indicator registers two sets of data: prices of each bar during the specified period in their chronological order and the same prices sorted ascendingly. Spearman's ratio found for these two sets is then multiplied by 100; value of +100 suggests strong correlation with uptrend and -100, with downtrend.
Since the extreme values of -100 and +100 are rarely recorded, values of +80 and -80 might be used as overbought and oversold levels respectively. Plotting the Spearman indicator along with its short SMA (e.g., three day SMA on daily charts) might give an idea when to expect the turning points: look for the crossovers of the two plots. Useful information can also be obtained by analyzing action of the indicator in relation to zero level: crossing above the zero level might be an opportunity for the Long Entry while falling below zero might suggest the Short Exit.
Input Parameters
| Parameter | Description |
|---|---|
price
|
The price to be used in calculation of Spearman's ratio. |
length
|
The number of bars in the period on which the prices are registered. |
average length
|
Defines period of SMA of Spearman indicator. |
over bought
|
Defines value of the overbought level. |
over sold
|
Defines value of the oversold level. |
Plots
| Plot | Description |
|---|---|
Spearman
|
The Spearman plot. |
SpearmanAverage
|
The SMA of Spearman indicator. |
OverBought
|
The overbought level. |
ZeroLine
|
The zero level. |
OverSold
|
The oversold level. |
Further Reading
1. "The Spearman Indicator for Technical Analysis" by Dan Valcu. Technical Analysis of Stocks & Commodities, February 2011.
Example*
*For illustrative purposes only. Not a recommendation of a specific security or investment strategy.