Buyers vs Sellers Indicator: Analyzing Market Strength

Introduction

The Buyers vs Sellers indicator, developed by davorloncarpetrovic, is a powerful tool for traders to objectively assess market dynamics. This indicator measures the relative strength of buyers against sellers, providing insights into their current relationship and how it evolves over time.

Key Features and Inputs

User Configurable Inputs

1. Number of Bars in Calculation
   Defines the lookback period, determining how much historical data is analyzed.
2. ATR Length
   A higher value is recommended. The Average True Range (ATR) serves as the unit for measuring price changes.
3. Bias Threshold
   Sets the minimum value required to consider buyers or sellers in control of the price.
4. Net Move Average Length
   The moving average applied to the sum of bullish and bearish price changes.

How It Works: The Calculation Process

Step 1: Measuring Price Changes

• The indicator calculates the difference between the opening and closing prices for each bar within the lookback period.

Step 2: Summing Bullish and Bearish Moves

• Bullish bars: Total size of all upward price movements.
• Bearish bars: Total size of all downward price movements.

Step 3: Normalizing Price Changes

• Converts total price changes into percentages of the ATR.
• Divides by the lookback period to derive price change per bar, ensuring manageable values while preserving proportionality.

Step 4: Calculating Net Move

• Sums bullish and bearish changes.
• Applies a simple moving average (SMA) to smooth the net move, representing the balance between bullish and bearish strength.

Step 5: Logarithmic Relationship

• Computes the natural logarithm of the ratio between bullish and bearish price changes.
• Provides a volatility-independent measure of relative strength, enabling cross-instrument comparisons.

Visual Representation

ATR Reference

• Displays the ATR value as a numerical reference.

Logarithm Visualization

1. Numerical Display

   • Shows precise values with color-coded thresholds (green for bullish bias, red for bearish bias).

2. Background Color

   • Highlights bias based on the logarithm value relative to the user-defined threshold.

Price Change Plots

• Bullish/Bearish Lines
  Plotted as filled areas above/below the zero line, illustrating individual moves.
• Net Move SMA Line
  Represents the smoothed relationship between bullish and bearish forces.

Benefits for Traders

👉 Enhance your trading strategy by integrating this indicator to:

• Objectively measure buyer-seller dynamics.
• Identify trends through normalized price changes.
• Compare instruments using volatility-independent metrics.

Frequently Asked Questions (FAQ)

1. How does this indicator differ from traditional RSI or MACD?

• While RSI and MACD focus on momentum, this indicator directly compares the absolute strength of buyers vs sellers, normalized for volatility.

2. What’s the ideal lookback period?

• Start with 14–28 bars for intraday trading; adjust based on your strategy’s time horizon.

3. Why use ATR for normalization?

• ATR accounts for volatility, ensuring consistent comparisons across different assets or timeframes.

4. Can this be automated in trading systems?

• Yes! The logarithmic output provides clear thresholds for algorithmic decision-making.

5. How reliable is the bias threshold?

• Backtest with historical data to calibrate thresholds according to your risk tolerance.

👉 Master market analysis with this open-source tool. Always validate strategies with paper trading before live deployment.