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Swing Index

Mandala Exchange
  • Updated

What is the Swing Index?

The Swing Index is a specialized technical indicator designed primarily to anticipate short-term price fluctuations. Envision it as an oscillator, which, when combined with the Accumulative Swing Index, provides insights into potential price trends for financial instruments.

Purpose of the Swing Index

The Swing Index's core utility lies in facilitating short-term trading decisions. In essence:

  • Up Bar: The Swing Index can have a value ranging from 0 to 100.
  • Down Bar: The value can range between 0 and -100.

Crunching the Numbers

To derive the Swing Index:

  • Factor in the current bar's open, high, low, and close rates.
  • Also, consider the prior bar's opening and closing values.

Trading Insights from the Swing Index

A trader's strategy can be informed by the Swing Index's movements:

  • Above Zero: This might indicate a potential upward trajectory in short-term prices.
  • Below Zero: Conversely, a downward short-term price movement might be on the horizon.

What is the Swing Index Indicator?

The Swing Index Indicator offers insights into a financial instrument's price trajectory by comprehensively examining its various price points.

Price Elements in Focus

For a holistic view, the indicator zeroes in on:

  • The opening price.
  • The closing price.
  • The highest price.
  • The lowest price.

All these are typically visualized via a daily candlestick pattern.

Formula Breakdown

The Swing Index Indicator relies on an intricate formula that combines various price points from the daily candlestick pattern. Let's break it down:

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Swing Index = [Weighted Price Change] / R x (K / M)

Where:

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Weighted Price Change = 50 x [Close - Previous Close + 0.5 x (Previous Close - Previous Open)+ 0.25 x (Close - Open)]

(Close - Previous Close) = the change between current and previous bar close prices.

(Previous Close - Previous Open) = the previous bar open-close change.

(Close - Open) = the current bar open-close change.

R (Price Swing):

The value for R shifts based on the observed price swing. Start by pinpointing the most significant among the three:

  1. (High - Previous Close)
  2. (Low - Previous Close)
  3. (High - Low)

Once identified, apply the corresponding equation:

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R = (High - Previous Close) - 0.5 x (Low - Previous Close) + 0.25 x (Previous Close - Previous Open)

R = (Low - Previous Close) - 0.5 x (High - Previous Close) + 0.25 x (Previous Close - Previous Open)

R = (High - Low) + 0.25 x (Previous Close - Previous Open)

Essentially, R captures a 2-bar price swing, taking into account both today's closing price and the highs and lows from the previous day.

Insights from the Formula

By dividing the weighted price change with the price swing, we derive a metric that captures the weighted change in its absolute values. This metric serves as a powerful tool to gauge the intensity and positioning of a price change relative to its swing.

Interpreting the Values

  1. Strong Upward Movement:

    • High Positive Weighted Change: When both the swing and the price change demonstrate an upward trend, the Swing Index gravitates towards higher positive values.

    • Neutral Weighted Change: If the market registers a strong upward swing, but only a minor positive or even a negative price change (indicating that prices initially increased but later decreased), the Swing Index tends to hover around zero.

  1. Strong Downward Movement:

    • High Negative Weighted Change: In instances where both the swing and the price change indicate a downward trend, the Swing Index will lean towards lower negative numbers.

    • Neutral Weighted Change: If the market sees a significant downward swing but only a slight negative or even a positive price change (suggesting that prices initially dropped but later recovered), the Swing Index generally stays around zero.

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K = the greatest absolute value of (High - Previous Close) and (Low - Previous Close)

M = is a maximum price change within a bar and it used to keep K/M in the 0-1 range.

 

Purpose of the Swing Index

The Swing Index serves as a benchmark to contrast a price change against its corresponding price swing. Its primary objective is to assess the potency of a particular price movement. By doing so, it helps traders discern:

  1. If the price swing and price change are in harmony (moving in the same direction).
  2. Whether the intensity of the price change mirrors that of the price swing.

Locating the Swing Index in Mandala Margin

For users of Mandala Margin, the Swing Index indicator is readily accessible among a suite of integrated indicators. To delve deeper into its application and benefits, navigate to the 'Indicators' section.

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