Random Walk Index

The random walk index in a trading indicator described by E. Michael Poulos in the technical analysis of stocks & commodities magazine.
The author defines the random walk index as the ratio of the real security move to the expected random walk. A ratio higher than one indicates that the security's move is higher than a random walk while a ratio lower than one indicates that the security's move is lower than a random walk.

Most technical indicators use fixed period to smooth, filter or normalize data (Fixed period are used because most of the indicator suppose the existence of persistent cycles). According to the author, this can provide misleading information because the indicators can be out of step with the markets.
The random walk index tries to determine whether a stock price change is random or not by measuring price ranges over previous bars and comparing them to a random walk. The length of the lookback is chosen depending on market price action.

How to use the indicator:
Right click on a chart's pane, select "Edit formula" then type the following formula:
a = rwi();
Plot(a, "Random walk index");


You can find more information about the random walk index here.

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