Candle Counter

What is the Candle Counter Indicator?

The Candle Counter Indicator tracks consecutive green or red candles in a specified timeframe. For instance, in the S&P 500, this indicator can reveal patterns like the average number of consecutive up or down days, maximum streaks of green or red candles, and give a general sense of trend strength and potential exhaustion points. The goal is to understand the behavior of trends over time and assess whether a trend is likely to continue or reverse based on historical patterns.

How to Use the Candle Counter Indicator

The Candle Counter Indicator helps with:

• Spotting Trend Strength and Exhaustion: By counting the consecutive number of green or red candles, you can gauge how strong a trend might be or if it’s nearing exhaustion.
• Identifying Trend Reversals: Prolonged streaks of green or red candles can signal upcoming reversals.
• Quantifying Trends: By knowing the average number of consecutive green or red candles, you can better assess market behavior for specific securities.

For instance, if you consistently observe five green candles in a row before a red candle appears, a streak of six or more green candles might suggest an overextended move, signaling a possible upcoming reversal.

Building the Candle Counter Indicator in thinkScript

Step 1: Getting Started

To start coding in ThinkOrSwim:

1. Click on the Studies icon and select Create.
2. Give your script a name, like Candle Counter, and delete any pre-existing code.

Step 2: Define Green and Red Candles

First, define green and red candles based on the closing and opening prices:

def greenCandle = close > open;
def redCandle = close < open;

• Green candles are defined by a close higher than the open.
• Red candles are the opposite, with a close lower than the open.

Step 3: Initialize Counter Variables

Create counters to track consecutive green and red candles. These counters will reset when the opposite color candle appears:

def greenCounter = if greenCandle then greenCounter[1] + 1 else 0;
def redCounter = if redCandle then redCounter[1] + 1 else 0;

• greenCounter increases by 1 for every green candle, resetting to 0 when a red candle appears.
• Similarly, redCounter tracks consecutive red candles, resetting when a green candle occurs.

Step 4: Calculate Maximum and Average Values

To gain additional insight, let’s calculate the maximum number of consecutive green and red candles as well as the average:

# Calculate maximum green and red streaks
def maxGreenCount = HighestAll(greenCounter);
def maxRedCount = HighestAll(redCounter);

# Calculate the total and average streak lengths
def totalGreenSum = TotalSum(greenCounter);
def totalRedSum = TotalSum(redCounter);

def greenStreaks = TotalSum(if greenCounter > 0 then 1 else 0);
def redStreaks = TotalSum(if redCounter > 0 then 1 else 0);

def avgGreenCount = totalGreenSum / greenStreaks;
def avgRedCount = totalRedSum / redStreaks;

Step 5: Plot Histogram and Label Values

Next, plot these values as histograms for easy visualization:

declare lower;

plot GreenHistogram = greenCounter;
GreenHistogram.SetPaintingStrategy(PaintingStrategy.HISTOGRAM);
GreenHistogram.SetDefaultColor(Color.GREEN);

plot RedHistogram = redCounter;
RedHistogram.SetPaintingStrategy(PaintingStrategy.HISTOGRAM);
RedHistogram.SetDefaultColor(Color.RED);

Finally, add labels to display the maximum and average values:

AddLabel(yes, "Max Green Streak: " + maxGreenCount, Color.GREEN);
AddLabel(yes, "Max Red Streak: " + maxRedCount, Color.RED);
AddLabel(yes, "Avg Green Streak: " + Round(avgGreenCount, 1), Color.GREEN);
AddLabel(yes, "Avg Red Streak: " + Round(avgRedCount, 1), Color.RED);

Applying the Candle Counter Indicator

Once your indicator is up and running, apply it to different securities to observe unique patterns:

1. Market Indices: Apply the Candle Counter to indices like the S&P 500, Dow Jones, or Nasdaq to compare trend behaviors.
2. Stocks: Use this on individual stocks to identify unique behavior patterns in different companies.
3. Timeframes: Experiment with different timeframes to gauge trend strength across intraday, daily, or weekly charts.

Conclusion

With the Candle Counter Indicator, you gain a practical tool to analyze market trends. By counting consecutive green or red candles, you can better anticipate trend exhaustion and potential reversals. This indicator not only enhances your trend-following strategy but also helps you refine your entries and exits based on historical candle patterns.

Try it out and integrate this tool into your trading strategies!