What is the Qstick indicator?
The Qstick indicator is a technical analysis indicator developed by Tushar Chande to numerically identify trends on a price chart. It is calculated by taking a moving average of ‘n’ periods of the difference between the opening and closing prices. A Qstick value greater than zero means that most of the last ‘n’ days have risen, indicating that buying pressure has been increasing.
The Qstick indicator is also called the Quick Stick. It is not widely available in trading and charting software.
- The QStick calculates a moving average of the difference between the closing and opening prices.
- A rising indicator indicates that the price is closing higher than it opened, on average.
- A falling QStick indicates that the price is closing below what it opened, on average.
- The QStick can generate trading signals based on signal line or zero line crossovers.
The formula for the QStick indicator is
QSI=EMA or SMA of (Close–Open)where:EMA=Exponential moving averagehigh school=Simple moving averageClose=End of period priceOpen=Opening price per period
There is the option to add a simple moving average (SMA) of the QStick indicator. This creates a signal line.
How to calculate the QStick indicator
- Record the differences between the closing price and the opening price for each period.
- Decide how many periods to use on the EMA or SMA. The more periods used, the smoother the indicator and the fewer signals, the better at identifying the general trend.
- Calculate the EMA or SMA once there are enough data points (close-open).
- Option: Calculate an SMA from Qstick calculations. This provides a signal line. Three is the common period used for signal lines.
What does the Qstick indicator tell you?
The QStick measures the buying and selling pressure, taking an average of the difference between the closing and opening prices. When the price, on average, closes below what it opens, the indicator moves down. When the price, on average, is closing above the open, the indicator moves up.
Trade signals occur when the Qstick crosses above the zero line. Crossing above zero is used as a buy signal because it indicates that buying pressure is increasing, while sell signals occur when the indicator moves below zero.
Also, an ‘n’ period moving average of the Qstick values can be drawn to act as a signal line. Transaction signals are generated when the value of Qstick crosses the trigger line. Three is a common ‘n’ period for the signal line.
When the QSticks moves above the signal line, it indicates that the price is starting to have more closes above the open and therefore the price may start to rise. When the Qstick crosses below the signal line, it indicates that the price is starting to have more closes below the open. The price may be starting to drop.
The indicator can also highlight the divergence. When the price goes up but the QStick goes down, it shows that the momentum may be waning. When the price is going down and QStick is going up, this shows that the buying momentum in the price may occur soon. However, the indicator can cause failures. It does not account for gaps, only intraday price action. Therefore, if the price opens higher, but closes below the open, this is still marked as bearish, although the price may have closed higher than the previous close. May could result in a divergence that does not necessarily indicate a timely reversal in price.
Example of how to use the QStick indicator
The chart below shows a 20-period QStick applied to the SPDR S&P 500 ETF (SPY).
When the price is choppy, so are the buy and sell signals. On the left side of the chart there are many zero line crossovers that did not generate profitable trading signals or identify the trend conclusively.
On the right side of the chart, there were more trending periods in the price. During this period, QStick did a better job identifying the trend, staying above zero when the price trend was up and staying below zero when the price trend was down.
The difference between the QStick indicator and the exchange rate (ROC)
QStick analyzes the difference between the opening and closing prices, and then takes an average of that difference. The ROC indicator looks at the difference between the current closing price and a closing price ‘n’ periods ago. Then that amount is divided by the closing periods of ‘n’ ago and then multiplied by 100. The indicators are similar, but slightly different data is calculated differently, so they will have slightly different trading signals.
Limitations of the use of the QStick indicator
The QStick indicator just looks at historical data and takes a moving average from it. Therefore, it is not inherently predictive, and its movements will generally lag behind actual price movements.
The QStick can produce anomalies when the price opens in one direction but the intraday price action moves in the other. This can cause divergences between the price and the indicator, but does not necessarily indicate a timely reversal of the price.
Trading signals may not necessarily be ideal and often have to be combined with some other filter. In hectic conditions, the price will skyrocket through the zero line and / or the signal line, generating numerous losing trades.