Discovery Index

27 maj

The Discovery Index is an original technical indicator which attempts to display directional market pressure and momentum based on accumulated candle-over-candle measurements.

Discovery, in this context, is the act of finding (discovering) New Highs and Lows.

> What is 'Discovery'

Not to be confused with "Price Discovery", the term for setting the spot price of an asset.

The term 'Discovery' in Discovery Index is used based on the literal definition of 'Discovery', such as, the action of finding what was previously unknown.

Given this definition,
Discovery is the difference between highs or lows only when the current high is higher than the previous high or the current low is lower than the previous low.

Below is a visual example of exactly where Discovery is seen from each candle.


Since discovery is only based on points of the candle, and not specifically the direction of the candle; it is possible for discovery to occur in both directions from the same candle.

It is also possible for no discovery to occur from a candle.

> Calculation

The Discovery Index is the Net Total of discovery data over a specified length of bars.

Discovery Index = Sum of Upwards Discovery + Sum of Downwards Discovery

Note: Upwards Discovery is always Positive, and Downwards Discovery is always Negative. By adding both together, their Net Total is produced. This value is the "Discovery Index".

Wick Calculation Example


> Volume Discovery

Using Volume for the Discovery Index Calculation allows for a different dimension to be added to the data for new analysis opportunities.

While volume data is only a single value, by accumulating this data over time, we are able to fabricate a candle body from the data by accounting for the direction of the chart candles.

This allows for the Calculation of the Discovery Index based on volume data.

Volume Example


> Display

The display uses a "Candlestick histogram" display. The bodies and wicks from the display represent the discovery data from the respective points in each candle. (Wick Discovery & Candle Body Discovery).

This style of histogram allows for the display of both data sources, preserving the accuracy and distinction between each type, while also providing a clean display.



> Considerations

1. Discovery index is not an Oscillator, since there are no upper or lower boundaries to its rotations.
   
   
2. There are not (at this time) any "Over-bought" or "Over-sold" Areas, this is partially due to the previous consideration since any levels for these could potentially change from chart to chart. Additionally, it would generally be better to read the data based on the context of the current market.
   
   
3. Non-directional movements effect the Discovery Index as well. Since Discovery does not occur from every bar, the Index reflects hesitations as well as movements in market direction.
   
   
4. With the option to input a symbol, the Discovery Index Indicator is not constrained to one chart ticker for its calculation and could help to see shifts between different symbols, making it easier to compare different assets.
   
   
5. With the separation of wicks and candle body data, a stronger move may be observed by its full-bodied movements, while a potentially more speculative move may be seen from large wick movements. Since wicks are often interpreted as either, Rejection for reversal OR as Testing for continuation, the interpretation for Wick Discovery generally varies based on context.
   
   
6. Discovery Index ⇾ Divergences! Due to its calculation, price (and/or volume) data is displayed in such a way that makes it useful as a tool for identifying divergence opportunities.
   
   
7. Remember, this indicator is lookback based. An immediate significant change from the data source (if not offset by a similar opposite change) will be represented for multiple bars after its occurrence. Due to this, data is likely to be skewed or biased from these occurrences for a period of time after.
   
   
8. Throughout development, "Discovery" has been shortened to just "Disco", therefore, this indicator is also an attempt to bring Disco Back.
   

Enjoy!