MA Correlation Coefficient

This script helps you visualize the correlation between the price of an asset and 4 moving averages of your choice. This indicator can help you identify trendy markets as well as trend-shifts.

Bear in mind that there is always some lag when using Moving-Averages, hence the purpose of this indicator is as a trend identification tool rather than an entry-exit strategy.

Working Principle
The basic idea behind this indicator is the following:

  • In a trendy market you will find high correlation between price and all kinds of Moving-Averages. This works both ways, no matter bull or bear trend.
  • In sideways markets you might find a mix of correlations accross timeframes (2018) or high correlation with Low-Timeframe averages and low correlation with High-Timeframe averages (2021/2022).
  • Trend shifts might be characterised by a 'staircase' type of correlation (yellow), where the asset regains correlation with higher timeframe averages

    Indicator Options

    1. Source: data used for indicator calculation

    1. Correlation Window: size of moving window for correlation calculation

    2. Average Type:

  • Simple-Moving-Average (SMA)
  • Exponential-Moving-Average (EMA)
  • Hull-Moving-Average (HMA)
  • Volume-Weighted-Moving-Average (VWMA)

    3. Lookback: number of past candles to calculate average

    4. Gradient: modify gradient colors. colors relate to correlation values.

    Plot Explanation

    The indicator plots, using colors, the correlation of the asset with 4 averages. For every candle, 4 correlation values are generated, corresponding to 4 colors. These 4 colors are stacked one on top of the other generating the patterns explained above. These patterns may help you identify what kind of market you're in.

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