Studies: Study Spreads

Ensign Windows has the ability to have the input for a study be another study. This is often called a 'Study on Study' type of calculation. One popular use of this concept is StoRSI where a Stochastic is calculated on the Relative Strength Index. Another common use of Study on Study would be plotting an average of the original study values, and using as a trade signal the study crossing its average.

A third use of Study on Study capabilities would be to plot the spread between two different studies, which will be illustrated in this article.

This chart has a Stochastic %K line plotted in Blue. Parameters are Bar=14, %K=5, %D=3. The Red line in the same study window is a 5 period average of a 9 bar Relative Strength Index (RSI). The issue being investigated is the spread between the Stochastic and the RSI which is the area that is painted yellow.

A MACD oscillator study plots the spread between two averages. For this example, the Data Point for the 1st average was set to use the Stochastic %K study. The Data Point for the 2nd average was set to use the Average RSI study. The average parameters are set to 1 so the raw study values are used for the spread calculation.

The Study Mode selected is Zones, which will permit the MACD line to be plotted using Green when it is above the threshold of zero, and Red when its value is below the threshold of zero. The MACD plot is shown in the bottom study window of the chart. You can visually see the correlation that when the Stochastic %K line (Blue) is above the Average RSI line (Red) then the MACD study line is above zero and plots using Green.

This visual effect has been transferred to the chart bars by using the Color Bar selection in the Marker drop down list. When the MACD is above zero and plotting a Green line, the color bar Marker is also coloring the chart bars Green. When the MACD is below zero and plotting a Red line, the color bar Marker is coloring the chart bars Red.

Trade signals might be created from this concept of comparing one study to another. The signals on the example chart look promising. However, there has been no attempt to optimize the parameters that were used in presenting the concept of Study Spreads. The article is just showing how different studies might be compared with each other by using the MACD oscillator to calculate a Study Spread.