From Eugene Durenard (Advanced Automated Trading) this is an useful indicator to spot price consolidations and reversals.
"For nonlinear trends in time and areas of high probability, how are reversals detected? To gain intuition, first consider the difference, when looking at a bar chart, of a linear trend versus a congestion: One observes that, on the same time interval, there is a divergence between the degree of overlap of bars, as seen projected onto the price axis (as if a light was shining on them from the right). For a trending market, that overlap, or shadow, is lighter than for a congested market. This gives rise to the shadow index."
Has also good capabilities at predicting an increase of volatility.
"Now, when the market is in a linear trend or a congestion, the DS I will be high. On the other hand, it will be low when the market accelerates away from a linear trend. So a pattern of mean-reversion exists for the DS I but the times when it is low are rare, because so are accelerations."
I'm having a bit of trouble wrapping my head around this interesting script. You say the times when it is low are rare but it is mostly BELOW 0.5 (or low, so that doesn't seem rare). Is it fair to say that moves toward 0.5 and above = higher degree of linearity and moves towards zero or below 0.5 = lower degrees of linearity?
Orph5781
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Could you please let us know how you get the most juice from this indicator? I cannot make an idea of how to obtain valuable info from it, although it seems amazing idea