Noise Rate Indicator

#volatility #noise #candlestick #filter 

Noise Rate Indicator measures how much of each candle is made up of shadows (wicks) versus body. Candles with long shadows and small bodies represent indecision and chop — high noise. Candles with large bodies and small shadows represent strong directional moves — low noise. The indicator averages this shadow ratio over a rolling period to give you a smooth reading of market noise. When noise is high, the market is choppy and fakeouts are common. When noise is low, the market is moving with conviction. 

Default period: 14, threshold at 10 

Line behavior: The NRI line moves up when candles have more shadow relative to their range — meaning the market is noisy and indecisive. It moves down when candles have more body relative to their range — meaning the market is clean and directional. A horizontal threshold line marks the boundary between normal and excessive noise. 

Useful readings: 

– NRI rising — noise is increasing. Candles are getting more wicky and indecisive. The market is losing direction. 

– NRI falling — noise is decreasing. Candles are getting cleaner and more directional. The market is finding its way. 

– NRI above threshold — excessive noise. The market is choppy. Breakouts fail. Reversals are unreliable. Stay cautious. 

– NRI below threshold — low noise. The market is moving cleanly. Trends are more reliable. Trades have higher conviction. 

– NRI at extreme highs — maximum indecision. The market is completely choppy. A sharp directional move often follows. 

– NRI at extreme lows — maximum conviction. The market is moving with force. The trend is strong and sustained. 

Objective rules: 

– Avoid entering new trades when NRI is above the threshold — the market is too noisy for reliable signals. 

– Favor trend-following trades when NRI is below the threshold — the market is clean and directional. 

– Watch for NRI falling from extreme highs — noise is clearing. A new trend may be starting. 

– Watch for NRI rising from extreme lows — noise is returning. The current trend may be exhausting. 

– Use NRI as a filter for other indicators — only trust signals that occur when NRI is below the threshold. 

– All standard ATR-based conditions (breakout, volatility expansion, squeeze) apply to NRI as well. 

What makes it unique: Most volatility indicators like ATR measure the size of price moves, not the quality of candles. NRI tells you whether the market is moving with clean, decisive candles or messy, wicky ones. Two markets can have the same ATR but completely different noise profiles. NRI exposes the difference. 

The indicator table value in TradePoint & RZone also provides you with a list of all values of this indicator for any group of stocks. This will allow you to compare the readings of this indicator across different stocks.

This indicator is also available in the System Builder of RZone & TradePoint. Using the system builder, you can develop various strategies based on the different conditions already present in this indicator. Additionally, it can be used with other indicators or price patterns to develop effective trading strategies. For any group of stocks and market segments, you can scan and backtest stocks based on those strategies.