Quantitative Qualitative Estimation (QQE) Indicator
The original QQE is based on Welles Wilder’s RSI ( Relative Strength Index ) indicator. Our indicator is also built on RSI and has some additional options that make it more versatile.
QQE takes the RSI, smooths and plots it. The absolute value in the change in smoothed RSI values from bar to bar is calculated and averaged twice and multiplied by a constant. This value is also plotted creating intersecting points between the two plots where price action is predicted to reverse.
Our QQE has an option that permits users to plot difference between the two plots. Here we see that in a blue histogram.
Users can plot both modes together:
In addition, our QQE allows users to substitute several other oscillators in place of the RSI.
How to use
How the QQE is used varies from trader to trader.
Some use it as a trend indicator. RSI values or smoothed RSI values above or below the 50 level will hold in a long trend thus confirming the trend or invalidating it should the 50 level be breeched.
A more advanced use is to use the histogram to find divergences between price action and the historgram itself.
When the price action reaches a new high the histogram is not reaching a new high. Traders may interpret this as a turning point lower. In fact, in this case it is. Can you spot the other example on the chart? These areas can be used to initate a swing trade.
Another thing illustrated here is how the crosses on the QQE indicator can be used to break up your chart into regions where sentiment has changed. These areas are important decision points where a lot of trades are being initiated and exited. When price action returns to these areas, look for some hesitation in the price action move that approaches these areas and scalp in the opposite direction.
The QQE indicator can be used from a NinjaTrader strategy. We have several FULLY AUTOMATED strategies in development. The following is an example performance graph for a FULLY AUTOMATED DAY TRADING strategy that uses the AtsQQE to trigger trade entries. A single E-mini S&P 500 futures contract is traded. Results include commission, slippage and, where limit orders are used, price must pass through the limit price to be considered a trade.