Markets do not always trend – very often you can spot a sideways or congestion area on the chart. This short article will show you how you can create a simple visual indicator which highlights such trendless market phases using the famous trend strength indicator called ADX. A breakout out of this zone could be a good opportunity for a trade. When it comes to coding, this is a good example of how to use multiple “if .. then .. else..” statements.
How can we define a trendless market phase?
The rules are pretty simple: When the market is below a specific ADX threshold, then the market is trendless and we want to display Bollinger Bands on the charts or an n-bar high low channel or colour the background of the chart. Here`s an example of the indicator will look like: In the upper subchart you can see the Bollinger Bands when the market is trendless, while the lower subchart draws a 20-bar-high-low channel.
And here`s how to code it in less than 20 lines using built-in functions and if-then statements.
Let`s code it!
- In line 4, please notice the variable called flags which will be used for colouring the background of the chart
- The variables for the upper and lower band of the Bollinger indicator are declared in line 7 and 8
- In line 10, the built-in function for the ADX is used in the if-then-statement
- If the ADX is lower than the value set in the input section, then either the Bollinger Bands or the high-low-channel or the coloured background is drawn.
- The input “style” (line 3) acts as a switch here.
- Line 17 and 18 are responsible for the high-low-channel. For this purpose, we use the highest high value (hhv) and lowest low value (llv) function
- If you would like to use a flexible value instead of 20 bars, you can add an input and then replace 20 with the input
- In line 22 you can see the command for colouring the background using the flags variable from line 4
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