Thoughts: Strength of Move (SoM) vs Trader Pressure Index (TPX)
Recently I posted updates to both my Strength of Move (SoM) and the Trader Pressure Index (TPX) indicators
as promised, i'm sharing this post to share how i use both of these indicators together as i trade, and how they act differently but complement each other.
Please note that these are only my own (humble) thoughts, based on how i thought about and designed these indicators, and what i expect them to show me. these thoughts are not professional recommendations and they may not work for other style of trading - they may even not make sense to someone who trades differently or if i flexibly use (or misuse) some of the classic technical analysis terms - apologies upfront for all that. also apologies if it's a long(ish) read,
Let's start with some background... How is TPX different from SoM?
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TPX is designed to represent the battle between buyers and sellers - or bulls and bears - by inspecting the highs and lows of consecutive price bars - in simple terms, if the highs and lows of bars are moving up, that's considered "bull pressure" - and if the highs and lows of bars are moving down, then that's considered "bear pressure" - a simple averaging calculation captures these values, and calculates also the Net Pressure - we plot these 3 values on an oscillator - and that can help show us who (bulls or bears) is in control of an ongoing price moves.
So TPX shows Bull / Bear Pressure ..
how is this different from "Strength of Move" ? isn't "strength" and "pressure" kind of "similar"?
SoM is designed to track the average change of price within a short period of time (2 to 5 periods) - and then looks into how that average change compares to a "longer average of move" -- for an analogy, think of this as if we're driving a car on a road - we're taking readings of the "distance covered" per time unit as we go - say our time unit is an hour. now, for the last 3 hours, we covered an average distance of 5 miles per hour -- but we used to be able to cover 15 miles per hour before -- this would be an indication that "we are losing speed" - we're travelling "less confidently" than we used to before -- but if before we were able to cover only 1 mile per hour, then 5 miles per hour is a great number, right? and in fact would show that we're accelerating.
SoM depends on the fact that price action is "relative" to previous / recent price action - if you're watching AAPL for the last 2 weeks, and it was in an up-trend, making jumps of 1.5% ~ 2% per day - then all of a sudden AAPL starts slowing down to 0.3% and 0.1% per day - or even registering down days - we know that the honeymoon (up-move) is over and that the trend may come to an end, or even reverse, soon.
long story, but that's how SoM was designed -- SoM reflects the "bias" or "confidence" of the average price move
-- note: bias is short-term-focused and is different from Sentiment (which is long-term) -- this is how i utilize these terms here.
-- another note: a -100% in SoM doesn't necessarily mean a price move to the downside - since SoM is relative to recent average price moves, it may just mean that "we're registering very weak moves that are the weakest we have seen in x (the length value) period" -- this can get a bit confusing. if it does, please keep it aside for now.
Now with this part clear - let's look at the examples here.
We have SoM and TPX overlaid in the same panel (they're both +100/-100 oscillators and it saves space - colors become a bit of a challenge though :)) - there's a moving average on the price chart and a MACD in the lower panel - this is actually one of the setups i use for my trading.
here's the key benefits i designed the SoM to achieve:
================================================
1 - early detection of weakness & strength:
in the AAPL chart example, we can see how SoM can be early to detect the end of a trend (the car in the above analogy is losing speed) - and shows a bias towards weakness, before both the trendline and the MACD. what i also like about SoM is that (because of the use of the stoch function) its behavior is "unambiguous" - so we can't mistake that it is going down when it does. This is an important parameter IMHO for a good indicator.
in the example below, a similar scenario shows couple of times on a smaller/faster timeframe - example (1) shows price moving in a range with a slight "bear pressure", but SoM detects a bias to the upside - and in example (2), SoM detects the end of the trend before any of the other indicators - this is not an issue with TPX or MACD, it's just that SoM is designed to be more sensitive as we explained above.
2 - Shows good entry / exit opportunities
Another benefit of SoM is that it can show good re-entry or exit opportunities, when the trend and pressure are up and we established a move up for price, i can use SoM to locate opportunities with the most "price weakness" to enter with a long position, to maximize profit -- same with an established move-down, i can find best "strong" bars to open a short position - i use that approach to time my entry into covered calls against my stocks - I highlighted couple of examples on the chart above.
3 - SoM helps confirm strong trends
the recent addition i made in v4, is to show a (blue/magenta circle) signal when the unsmoothed SoM plot (shows as a very faint silver line) hits 100% in either directions - when this happens, it reflects a strong price bias to that direction - our car all of a sudden accelerated to 50 miles per hour - these "relatively big moves" usually mean something is underway - and if the SoM continues to print these signals with confirmation from MACD and TPX, then the probability of a well-established trend is high and i can plan my trades & risks accordingly
- best way to learn how these indicators work together, is to add them to a chart of something you already trade and are familiar with how it behaves, set the chart to a small timeframe, say 3 mins, and watch it for a while - try to interpret what the signals mean and expect the next move - we will not be 100% accurate and don't let that frustrate you - but once your success rate is reasonable (70% or so) , you'll feel more comfortable using them in real trading - especially now that you're familiar with the "inner works"
in closing, i hope this wasn't too much, and provided what i promised - to share more about the use and the "internal" workings of these 2 indicators - and how I use them in my trading with some examples .. I will be more than happy if this post helps inspire some ideas for fellow traders, and make them a bit more successful in their trading.
happy to receive comments or feedback - or thoughts from fellow traders who already played around with these indicators and would like to share their experiences. "constructive criticism" also welcome, we're all here to learn 😄
good luck and trade safe.
as promised, i'm sharing this post to share how i use both of these indicators together as i trade, and how they act differently but complement each other.
Please note that these are only my own (humble) thoughts, based on how i thought about and designed these indicators, and what i expect them to show me. these thoughts are not professional recommendations and they may not work for other style of trading - they may even not make sense to someone who trades differently or if i flexibly use (or misuse) some of the classic technical analysis terms - apologies upfront for all that. also apologies if it's a long(ish) read,
Let's start with some background... How is TPX different from SoM?
-----------------------------------------------------------------------------------
TPX is designed to represent the battle between buyers and sellers - or bulls and bears - by inspecting the highs and lows of consecutive price bars - in simple terms, if the highs and lows of bars are moving up, that's considered "bull pressure" - and if the highs and lows of bars are moving down, then that's considered "bear pressure" - a simple averaging calculation captures these values, and calculates also the Net Pressure - we plot these 3 values on an oscillator - and that can help show us who (bulls or bears) is in control of an ongoing price moves.
So TPX shows Bull / Bear Pressure ..
how is this different from "Strength of Move" ? isn't "strength" and "pressure" kind of "similar"?
SoM is designed to track the average change of price within a short period of time (2 to 5 periods) - and then looks into how that average change compares to a "longer average of move" -- for an analogy, think of this as if we're driving a car on a road - we're taking readings of the "distance covered" per time unit as we go - say our time unit is an hour. now, for the last 3 hours, we covered an average distance of 5 miles per hour -- but we used to be able to cover 15 miles per hour before -- this would be an indication that "we are losing speed" - we're travelling "less confidently" than we used to before -- but if before we were able to cover only 1 mile per hour, then 5 miles per hour is a great number, right? and in fact would show that we're accelerating.
SoM depends on the fact that price action is "relative" to previous / recent price action - if you're watching AAPL for the last 2 weeks, and it was in an up-trend, making jumps of 1.5% ~ 2% per day - then all of a sudden AAPL starts slowing down to 0.3% and 0.1% per day - or even registering down days - we know that the honeymoon (up-move) is over and that the trend may come to an end, or even reverse, soon.
long story, but that's how SoM was designed -- SoM reflects the "bias" or "confidence" of the average price move
-- note: bias is short-term-focused and is different from Sentiment (which is long-term) -- this is how i utilize these terms here.
-- another note: a -100% in SoM doesn't necessarily mean a price move to the downside - since SoM is relative to recent average price moves, it may just mean that "we're registering very weak moves that are the weakest we have seen in x (the length value) period" -- this can get a bit confusing. if it does, please keep it aside for now.
Now with this part clear - let's look at the examples here.
We have SoM and TPX overlaid in the same panel (they're both +100/-100 oscillators and it saves space - colors become a bit of a challenge though :)) - there's a moving average on the price chart and a MACD in the lower panel - this is actually one of the setups i use for my trading.
here's the key benefits i designed the SoM to achieve:
================================================
1 - early detection of weakness & strength:
in the AAPL chart example, we can see how SoM can be early to detect the end of a trend (the car in the above analogy is losing speed) - and shows a bias towards weakness, before both the trendline and the MACD. what i also like about SoM is that (because of the use of the stoch function) its behavior is "unambiguous" - so we can't mistake that it is going down when it does. This is an important parameter IMHO for a good indicator.
in the example below, a similar scenario shows couple of times on a smaller/faster timeframe - example (1) shows price moving in a range with a slight "bear pressure", but SoM detects a bias to the upside - and in example (2), SoM detects the end of the trend before any of the other indicators - this is not an issue with TPX or MACD, it's just that SoM is designed to be more sensitive as we explained above.
2 - Shows good entry / exit opportunities
Another benefit of SoM is that it can show good re-entry or exit opportunities, when the trend and pressure are up and we established a move up for price, i can use SoM to locate opportunities with the most "price weakness" to enter with a long position, to maximize profit -- same with an established move-down, i can find best "strong" bars to open a short position - i use that approach to time my entry into covered calls against my stocks - I highlighted couple of examples on the chart above.
3 - SoM helps confirm strong trends
the recent addition i made in v4, is to show a (blue/magenta circle) signal when the unsmoothed SoM plot (shows as a very faint silver line) hits 100% in either directions - when this happens, it reflects a strong price bias to that direction - our car all of a sudden accelerated to 50 miles per hour - these "relatively big moves" usually mean something is underway - and if the SoM continues to print these signals with confirmation from MACD and TPX, then the probability of a well-established trend is high and i can plan my trades & risks accordingly
- best way to learn how these indicators work together, is to add them to a chart of something you already trade and are familiar with how it behaves, set the chart to a small timeframe, say 3 mins, and watch it for a while - try to interpret what the signals mean and expect the next move - we will not be 100% accurate and don't let that frustrate you - but once your success rate is reasonable (70% or so) , you'll feel more comfortable using them in real trading - especially now that you're familiar with the "inner works"
in closing, i hope this wasn't too much, and provided what i promised - to share more about the use and the "internal" workings of these 2 indicators - and how I use them in my trading with some examples .. I will be more than happy if this post helps inspire some ideas for fellow traders, and make them a bit more successful in their trading.
happy to receive comments or feedback - or thoughts from fellow traders who already played around with these indicators and would like to share their experiences. "constructive criticism" also welcome, we're all here to learn 😄
good luck and trade safe.
