Random Walk Index Indicator is a technical indicator that attempts to determine if an issue is trending or in a random trading range. The market depends on this indicator a strong uptrend or downtrend by measuring price ranges over N. It also differs from what would be expected by a random walk which is randomly going up or down. The greater the range suggests a stronger trend. In the states are present in this indicator is shortest distance between two points is a straight line and other is the further prices stray from a straight line and implies the market is choppy and random in nature.
If traders want to use the Random Walk Index (RWI) indicator, then they can find it in the STUDIES section of Zerodha Kite. Also this is available in the Kite mobile App. The default PERIOD is 14 and you can set the colours of the high and low. You can check how we attached the Random Walk Index indicator in Reliance Industries share price chart. This works on to any charts likes daily, weekly, monthly or intraday you can attach.
Formula of Random Walk Index Indicator :
High period = (HI – LO.n / (ATR.1(n) * SQRT(n)).
Low periods = (HI.n – LO / (ATR.1(n) * SQRT(n)).
The random walk index in a trading indicator described by E. Michael Poulos in the technical analysis of stocks and commodities magazine. The random walk index as the ratio of the real security move to the expected random walk which is defined by the author. A ratio higher than one indicates that the security’s move is higher than a random walk while a ratio lower than one indicates that the security’s move is lower than a random walk.
In whole indicators, most technical indicators use fixed period to smooth and filter or normalize data. Also, this fixed period is used because most of the indicators support the existence of persistent cycles. This indicator tries to determine whether a stock price change is random or not by measuring price ranges over previous bars and comparing them to a random walk. In RWI, the length of the look-back is chosen depending on market price action.