Expansion Contraction compares 2 price points (the high and the low), up or down through the 2 moving average channel (MAC) settings. Since Expansion Contraction measures every period (chart setting), it technically has “zero lag”. A second indicator compares 2 price points (the high and the low), up or down through 2 longer look-back moving average channel settings… Note: Ideally, this ratio usually produces a condition where a 2 standard deviation short term move (strong swing) equals approximately a 1 standard deviation long term move (trend strengthening).
Basically, if both the short term swing is expanding higher and the long term trend is expanding higher, then that signals the strongest part of the current swing higher (dark green bars). The strongest part of the current swing lower (dark red bars), occurs when both the short term swing is expanding lower and the long term trend is expanding lower.
Light green bars occur when the short term swing is expanding lower however; the long term trend is still bullish. Light red bars occur when the short term swing is higher however; the long term trend is still bearish. These indicate weakness in the current swing and Jake’s trailing stop rules should be considered.
When both the short term swing and the long term trend are within 1 standard deviation based on the short term swing, the resulting narrow range indicates a “not trending” or range bound condition.
When the short term swings are at or beyond +2 standard deviations, this setup is a leading indicator of the trend direction most of the time (not how long the trend will last). When the long term trend, up or down exceeds a 2 standard deviation move higher, the condition is considered over-bought or over-sold, respectively. Trade Navigator programming appears as a colored triangle (red/green). Use trailing stop rules.
Indicator created by Brian Latta based on Jake Bernstein’s principles of Moving Average Channel system.
Brian Latta - Author of “The Book on Trading”, trading system developer and coach Jake Bernstein - Speaker at Wealth365®
Thank you for demonstrating this Expansion Contraction indicator. It looks impressive. Could you please give some background on the standard deviation. Is the basis the Expansion/Contraction line? If I use a 500 day standard deviation (default settings) on the Expansion Contraction line I get higher readings than the standard deviation values which the indicator is showing. This is the case for the standard deviation of the short as well as the long Expansion Contraction line. I’m trying to understand the volatility better. Hope you are willing to help me on this. Thanks a lot.
mist1949
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If I understood correctly, it seems to me that the words in the explanatory text say the exact opposite of what the graph appears. For example, in the text you define the dark green bars those that in the graph appear instead as the light green bars etc. Can you check it out? Thank you.
mist1949
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Thanks for sharing with us this interesting indicator I've been looking for a while because J. Bernstein uses it every day in "charts with jake". The problem is that I still find difficult to understand how to use it. Can you explain a little more how to use it in relation to the MAC. In particular what are the signals it can give. I'm fine with it even if you prefer to indicate a link to a text or video. Anyway thanks again a lot!
jawturbo
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This is a great indicator. I use it trading/scalping the index futures where you must be nimble. When I Enable Trend Bar Colors I expected to see exactly dark/light green and dark/light red candles. Whet I see instead are some green candles with red borders (when cloud=green and original bar = red ??) and conversely some red candles with blue borders (cloud=red and original bar = green ??). I must be making some sort of mistake when I configure the XC indicator. Pls help.
viewer405
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@jawturbo, you need to disable border colors on your TradingView settings
jawturbo
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@viewer405, Thank you. I did turn off borders. However, the indicator is still changing the bar color of red candles to blue with a red wick (green cloud) and blue candles to red with a blue wick (red cloud). If at all possible, I would like to see strong/weak blue candles and strong/weak red candles regardless the state of the cloud. I am very interested in the strength or weakness of a bar. I have Long Exp/Con Cloud turned on so I can see the state of the cloud quite clearly without having the information duplicated in the bars. TIA.
viewer405
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@jawturbo, that's also a setting with the candle wicks on your TradingView settings. I set my candle wicks to a neutral color (gray) to avoid having that type of discrepancy.
jawturbo
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@viewer405, I did that. Perfecto. You are the man! Thanks.
sdsswanson
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Brian, are you guys working on implementing the colored triangles explained above into trading view?
viewer405
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Hi @sdsswanson, currently TradingView does not have the ability to show arrows on a pane other than the one where the indicator is shown. However, we do have a plan to build it into a strategy, in which case you'll be able to see the arrows. Currently there's no ETA for the development of that strategy.