The Qstick indicator is a momentum indicator which provides a measurement of buying or selling strength in a market. It’s basically a calculation of the difference between the open and close prices. The indicator is designed to indicate net price gains or losses over a specific time period. This portrayed indicator is just like the well-known moving average convergence divergence. This momentum indicator likes the Qstick often provide an early indication of failing the momentum and this market trend that is exhausting itself and about to change direction. This type of indicator was designed by a scientist, inventor, author, and trader Tushar Chande. He has a Ph.D. in engineering and holds nine U.S. patents.
In the Zerodha Kite platform, traders can find the Qstick indicator under the STUDIES section. This indicator is also available in the Kite mobile App. The Period is 8 and you can set the value of it high and low. The Moving Average Type is simple you can change it also. You can check the image posted below to get an idea on how we attached the Qstick indicator in Reliance Industries share price chart. You can attach the QS indicator on to any charts likes daily, weekly, monthly or intraday.
Qstick Indicator Formula: The QS simply builds a moving average for n-periods that would show the difference between close and open prices.
QStick = MA(n, (Close – Open)). [Where n is the number of periods for calculation of moving average.]
The trading strategy of Qstick indicator are:
- The condition for the trade – Price must be near or approaching a major level of support or resistance, such as previously established which is the high or low price and the pivot point or the level of a major moving average.
- Trading signal – Price makes, or has made, a new high or low for the day, but the Qstick diverges from price by not making a corresponding new high or low. For example, if the price reaches a new low, but the Qstick indicator has not and instead turns upward, initiate a buy trade.
- Stop-loss – the recognized support or the resistance level, allowing the price to penetrate somewhat in the recognized place of an initial stop-loss order, but not significantly, past the level.
- Confirmation – Show an increase in trading volume to confirm the trend change.
The QS indicator can identify overbought and oversold conditions. There are several ways to trade the Quick stick indicator: (a)Crossovers – when the indicator crosses above zero then buy and when it crosses below zero then sell. (b)Extreme Levels – when the Qstick indicator is at an extremely low level and turning up then buy and when the Qstick indicator is at an extremely high level and turning down then sell. Divergence BUY when the QS not moving down with the price. When the QS is moving down and prices are moving up then it will be SELL.
The Beyond Technical Analysis book was written by Tushar Chande where he discussed about this tool. The Qstick indicator easily devised the trading strategy which seeks to take advantage of significant market turns, either in intraday swing trading or in relation to longer-term market trends.