EMA Power Ranking [wbburgin]

This is one of my favorite indicators I've developed. It measures the strength of an uptrend or a downtrend and produces signals for when that trend is weakening.

From my time trading I have learned that moving averages are not good signals to determine trend changes, because they are lagging indicators. However, we can use a moving average system - and the rates of change of the moving averages and the widths between them - to determine when the trend is changing faster than we can using the moving averages themselves. This makes moving averages super useful because we are essentially predicting mean reversal. Then, if we do the same for multiple moving averages of multiple lengths, we can have a pretty accurate perspective of when the price trend is about to reverse.

You can choose which type of MA works best for you, despite the script name. I've found that inverse volatility is the most accurate, but all of my ELMA (elastic MA) signals are also less frequent.

Calculations
The script calculates whether the differences between five moving averages of different lengths are increasing or decreasing, and if the moving averages are positioned properly compared to each other.

When looking at two moving averages, if the width between the moving averages is increasing, and the faster moving average is above the slower moving average the trend is bullish, because the price is outpacing both MA's upwards.

Vice versa, if the width between the moving averages is increasing, and the faster moving average is below the slower moving average the trend is bearish, because the price is outpacing both MA's downwards.

It's deceptively simple. The indicator flags a reversal to the downside immediately after a bullish trend loses momentum, and a reversal to the upside immediately after a bearish trend loses momentum.

Quick note: This isn't a trade setup - I strongly advise that if you are to use this indicator with any strategy, you make sure that there is a stop loss and possibly stop sell as well. The indicator is great at predicting trend reversions, but also falls prey to continuations of both downtrends and uptrends. Best for use in oscillating markets.

Quick note 2: Forgot to mention the precision factor, which goes from 0 (default) to 2. Each step up uses an additional moving average for greater accuracy (i.e. when they are coordinated in a bullish trend, bearish trend, etc.).

Versionshinweise:

Changed the photo to reflect accuracy better.