Qstick Indicator: What You Need to Know Before You Trade

In this article, we will discuss

• The Qstick Indicator: An Overview
• The Qstick Indicator Formula
• Calculating the Qstick Indicator: A Step-by-Step Guide
• Calculating the Qstick Indicator: An Example
• How to Interpret the Qstick Indicator?
• Qstick Indicator vs Rate of Change (ROC)
• Conclusion

When you think of identifying price and trading patterns on a chart, you may recall visual methods like candlestick charts, point & figure charts and even Kagi charts. However, these are not the only techniques to study price trends. With the Qstick indicator, it is also possible to represent price movements numerically.

In this article, we examine what the Qstick indicator is, how it is calculated and interpreted and how it is different from the ROC.

The Qstick Indicator: An Overview

Also known as the Quick Stick indicator or QSI, this is a technical momentum indicator that was developed by popular author and trader Tushar Chande. It is the simple moving average or the exponential moving average of the difference between the closing and opening prices of an asset over a specific period.

You can choose the period for computing the SMA or EMA based on your trading or investment horizon. Once you find the Qstick indicator values for the chosen period, you can plot these values on a chart to understand how the metric has increased or decreased historically. This will, in turn, help you gauge whether you may be dealing with a bull market or a bear market.

The Qstick Indicator Formula

Based on the meaning of the Qstick indicator, here is what the formula for the price measure looks like.

Qstick Indicator (QSI) = SMA or EMA of the (Closing Price — Opening Price)

Here, the SMA is the simple moving average and the EMA is the exponential moving average. When you plot the SMA of the QSI, you get the signal line, which is quite useful in identifying trading patterns.

Calculating the Qstick Indicator: A Step-by-Step Guide

To better understand how the Qstick indicator can be useful in identifying a bear market or a bull market, let us explore the process involved in calculating the QSI. Here is what you need to do:

• Step 1: Identify the number of periods over which you want to calculate the QSI.

• Step 2: For each of those periods, calculate the difference between the closing and opening prices.

• Step 3: Calculate the SMA or the EMA for the above data points (i.e. the differences between the closing and opening prices).

This will give you the Qstick indicator value. However, you can take this one step further and calculate the SMA of the Qstick values to obtain the signal line. Typically, three periods are considered for this purpose.

Calculating the Qstick Indicator: An Example

Let us consider the opening and closing prices of a stock over 15 trading days as shown in the table below. Considering a moving average period of 3 days and a simple moving average for the purpose of QSI computation, this is what we have:

You can plot these values on a chart to get more clarity on how the QSI values have changed over the given period. This will help you interpret the Qstick indicator better and understand the trading pattern required.

How to Interpret the Qstick Indicator?

By studying the values of the Qstick indicator and evaluating how they change from one trading session to the next, you can get a clearer picture of the overall price pattern. Here are some pointers to help you understand and interpret QSI values and changes more effectively.

• Increase or Decrease in QSI Values

The Qstick indicator tells you whether the buyers or sellers dominated the market for an asset on any given trading day. If the closing price on a trading day is less than its opening price, it means the sellers dominated the market on that day. In this case, the Qstick indicator value decreases. Conversely, if the price of an asset closes higher than it opens, it means the buyers dominated the market during that session. Here, the Qstick indicator value increases.

• Positive Qstick Indicator Values

Positive QSI values occur when a stock closes higher and indicate an uptrend in the asset’s price during the concerned trading session. The higher the QSI value is, the stronger the upward momentum in the stock’s price. If an asset’s QSI values are consistently positive over a few consecutive trading sessions, you may be looking at a bull market for that asset. In this scenario, a long position in that stock or security may be suitable. Alternatively, if you have already shorted the asset, it may be time to square off that position.

• Negative Qstick Indicator Values

If the Qstick indicator’s value is negative during a trading session, it means that the stock’s closing price was lower than its opening price. The lower or the more negative the QSI gets, the stronger the downward momentum is considered to be. If you notice that an asset is recording negative QSI values in consistent trading sessions, it may point to a bear market for that asset. This may be a sign to short that asset or to square off an existing long position in that stock or security.

• Zero Line Crossings

Zero line crossings are crucial points of interest for traders. It may be a sign that you have to reassess your open positions and take any corrective actions that may be necessary. When the Qstick crosses above the zero line, it signals a potential bullish reversal. This, in turn, suggests that the prevailing trend might be shifting from negative to positive. Conversely, when the Qstick crosses below the zero line, it signals a potential bear market as the trend might be shifting from positive to negative.

Qstick Indicator vs Rate of Change (ROC)

Both the Qstick indicator and the Rate of Change (ROC) are similar in one way — they consider the difference in two specific prices of an asset. However, the similarities end here. Although they are both technical analysis tools, the ROC and the QSI serve different purposes, provide different insights and differ from each other in many ways.

As you have seen in this article, the Qstick calculates the average difference between a stock's opening and closing prices over a specified period. So, it indicates the strength and direction of price trends. Positive values suggest an uptrend, while negative values indicate a downtrend. Zero line crossings may signal potential trend reversals.

On the other hand, the ROC measures the change in an asset’s price from one period to the next. It is calculated as the difference between the current closing price of the asset and its price ‘n’ periods ago. So, it reflects the speed or momentum of the asset’s price movements. Positive ROC values reflect an upward momentum, while negative values indicate a downward momentum. Also, if the ROC crosses above zero, it indicates a shift to a positive momentum (and vice versa).

Conclusion

The Qstick indicator and the Rate of Change (ROC) are only two of the many technical analysis tools and indicators available to traders. To access the best indicators for options trading and stock trading, sign up for a demat account from Samco Securities today. You can then check out and utilise a wide range of technical analysis tools, indicators and charts free of cost on the Samco trading app.

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