NinjaTrader RCI (Rank Correlation Index) Indicator
The Rank Correlation Index (RCI) uses a combination of price change data and time change data to identify potential changes in market sentiment, thereby exposing turning points.
Key Points About RCI
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Based on Ranking:
Instead of using raw price values, the RCI assigns ranks to prices and to time periods. This means it’s more focused on the order of data rather than the magnitude of change. -
Calculation Method:
It uses a formula similar to Spearman’s rank correlation coefficient where d is the difference between the time rank and the price rank, and n is the number of periods. The result is scaled between -100 and +100. -
Interpreting the Value:
- +100: A perfect positive correlation – the most recent prices are the highest (strong uptrend).
- -100: A perfect negative correlation – the most recent prices are the lowest (strong downtrend).
- Near 0: Little to no trend, suggesting that the prices do not have a clear sequential order.
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Usage in Trading:
Traders use RCI to identify the strength and direction of trends. Because it’s based on ranking rather than absolute values, it can sometimes filter out noise and outlier effects, providing a clearer view of the underlying trend dynamics.
Risk Disclosure
Futures trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
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