Qstick Indicator: Definition, Calculation & Trading Strategies

The Qstick indicator, developed by Tushar Chande, is a technical momentum indicator used to identify a stock’s trend by looking at the moving average of the difference between a stock’s closing and opening price. To generate insight, the Qstick indicator is generally calculated over a specified period of time.

Summary

• The Qstick indicator is a technical momentum indicator used to identify a stock’s trend by looking at the moving average of the difference between a stock’s closing and opening price.
• A Qstick indicator > 0 indicates increasing buying pressure, and a Qstick indicator < 0 indicates increasing selling pressure.
• The calculation of the Qstick indicator requires the following parameters: (1) Chart time frame, (2) Moving average length, and (3) Type of moving average.

Calculation of the Qstick Indicator

The calculation of the Qstick indicator depends on the desired chart time frame, moving average length, and type of moving averageMoving AverageA moving average is a technical indicator that market analysts and investors may use to determine the direction of a trend. It sums up the data points.

• Chart time frame: A commonly used time frame is daily. However, it is not uncommon to use time frames such as one minute or weekly.
• Moving average length: A shorter moving average length is better suited for short-term traders, while a longer moving average length is better suited for long-term investors. It is due to the lag associated with a longer moving average length.
• Type of moving average: Types of moving averages include simple moving average (SMA), exponential moving average (EMA)Exponential Moving Average (EMA)The Exponential Moving Average (EMA) is a technical indicator used in trading practices that shows how the price of an asset or security changes over a, smoothed moving average (SMMA), and linear weighted moving average (LWMA).

The Qstick indicator is calculated by taking an “n” period moving average of the difference between the closing and opening prices of a stock. The calculation of the indicator is best understood through an example, as provided below.

Example of the Qstick Indicator

The following shows the daily candlesticks and associated dataset for Stock A:

Below, we will calculate the two-day simple moving average for Stock A. As such, the key parameters for our Qstick indicator:

• Chart time frame is daily.
• Moving average length is two days.
• The type of moving average is a simple moving average.

The construction of the Qstick indicator is provided below:

*Given a simple moving average length of two days, calculation of the Qstick indicator on “t” day would be ([Close-Open]_t + [Close – Open]_t-1) / 2. For illustrative purposes, if we change the simple moving average length to four days, calculation of the Qstick indicator on “t” day would be ([Close-Open]_t + [Close – Open]_t-1 + [Close – Open]_t-2 + [Close – Open]_t-3) / 4

Plotting the values of the Qstick indicator would yield the following chart, which is commonly used in technical analysis:

Interpreting the Qstick Indicator

After seeing how the Qstick indicator is calculated, how do you interpret it?

In technical analysisTechnical Analysis - A Beginner's GuideTechnical analysis is a form of investment valuation that analyses past prices to predict future price action. Technical analysts believe that the collective actions of all the participants in the market accurately reflect all relevant information, and therefore, continually assign a fair market value to securities., a Qstick indicator > 0 indicates increasing buying pressure, and a Qstick indicator < 0 indicates increasing selling pressure. Through plotting the Qstick indicator, trends can be identified. As such:

• Crossing above zero provides a BUY signal.
• Crossing below zero provides a SELL signal.

Furthermore, it is common for traders to identify extreme highs and lows of a Qstick indicator plot to identify entry/exit points:

• When the Qstick indicator is reversing off of an extreme high, it is a signal to SELL, and when the Qstick indicator is reversing off an extreme low, it is a signal to BUY.

Lastly, divergences can be spotted by comparing the Qstick indicator with the associated stock price.

• When the Qstick indicator is increasing, but the stock price is decreasing, it is a signal to BUY, and when the Qstick indicator is decreasing, but the stock price is increasing, it is a signal to SELL.

Although the Qstick indicator can provide BUY and SELL signals, it is not advised to base a trading decision solely on the technical indicator. Other indicators (such as the MACDMACD Oscillator - Technical AnalysisThe MACD Oscillator is used to examine short-term moving average convergence and divergence. The MACD Oscillator is a double-edged technical indicator in that it offers traders and analysts the ability to follow trends in the market, as well as gauge the momentum of price changes., RSI, Klinger Volume Oscillator) should be used in conjunction with the Qstick indicator.

Learn More

CFI offers the Capital Markets & Securities Analyst (CMSA)®Program Page - CMSAEnroll in CFI's CMSA® program and become a certified Capital Markets &Securities Analyst. Advance your career with our certification programs and courses. certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below:

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