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 an ‘n’ period moving average of the difference between the open and closing prices. A Qstick value greater than zero means that the majority of the last ‘n’ days have been up, indicating that buying pressure has been increasing.
The Qstick Indicator is also called Quick Stick. It is not widely available in trading and charting software.
Calculation of the Qstick Indicator
The calculation of the Qstick indicator depends on the desired chart time frame, moving average length, and type of moving average.
- Chart time frame: A commonly used time frame is daily. However, it is not uncommon to use time frames such as one minute or weekly.
- Moving average length: A shorter moving average length is better suited for short-term traders, while a longer moving average length is better suited for long-term investors. It is due to the lag associated with a longer moving average length.
- Type of moving average: Types of moving averages include simple moving average (SMA), exponential moving average (EMA), smoothed moving average (SMMA), and linear weighted moving average (LWMA).
The Qstick indicator is calculated by taking an “n” period moving average of the difference between the closing and opening prices of a stock. The calculation of the indicator is best understood through an example, as provided below.
What Does the Qstick Indicator Tell You?
The QStick is measuring buying and selling pressure, taking an average of the difference between closing and opening prices. When the price, on average, is closing lower than it opens, the indicator moves lower. When the price, on average, is closing higher than the open, the indicator moves up.
Transaction signals occur when the Qstick crosses above the zero line. Crossing above zero is used as a buy signal because it is indicating that buying pressure is increasing, while sell signals occur when the indicator moves below zero.
In addition, an ‘n’ period moving average of the Qstick values can be drawn to act as a signal line. Transaction signals are then generated when the Qstick value crosses through the trigger line. Three is a common ‘n’ period for 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 price may be starting rise. When the Qstick crosses below the signal line it indicates price is starting have more closes below the open. Price may be starting to trend lower.
Limitations of Using the QStick Indicator
The QStick indicator only looks at historical data, and takes a moving average of it. Therefore, it is not inherently predictive, and its movements will typically lag behind the actual movements in price.
The QStick can produce anomalies when the price is gapping in one direction but the intraday price action moves the other. This may cause divergences between the price and the indicator but may not necessarily indicate a timely reversal in price.
The trade signals may not necessarily be ideal, and often need to be combined with some other filter. In choppy conditions the price will whipsaw across the zero line and/or signal line, generating numerous losing trades.