STRSQZ -- Stretch and Squeeze (w auto calibrate)

This indicator displays the premium/discount between a future contract and its cash index
A popular display pair is YM and INDU

Basic Concept:
When the market is going up, the future leads the cash with premium.
When the market is going down, the future leads the cash with discount*.
(* or less premium)

The key is to look for excessive premium/discount at points of change.
(eg. at channel boundaries, price extremes, etc.,)

Note that this is not a Buy/Sell type of indicator
You will need to understand the workings of the market to exploit these signals.

Instructions:
set up 3 symbols in the chart:
data1: INDU index (1 minute)
data2: YM current month future contract (1 minute)
data3: YM current month future contract (5 minutes)

Set the first 2 symbols to invisible...
the 3rd symbol is your trading chart
(you can substitute the 3rd symbol with other instruments, eg. ES, NQ)

Note:
1. The indicator uses a moving average to surpress the noise. The first few bars of the day is not displayed
2. The indicator will stop plotting when the cash is closed
3. The histogram color threshold is user adjustable

[Tams]

Originally Posted by Trader333 »

Tams,
In your above examples of how this may be used you show three charts. The last one has the examples where price is above and below the MA. Is this the MA of the indicator or another MA ?
Thanks
Paul

..... it is another MA.

[Tams]

Originally Posted by BlowFish »

I guess as this 'calibrates' itself you could use it on any correlated pair of instruments like I dunno DAX and ESTX?

Yes, this indicator can be used with any pair...
even unequal/uncorrelated pairs.

All this indicator does is to show the differences between the two.
The trick is in the "auto" calibrate part.

;-)