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The Heatmap Technical Indicator
Creating the Heatmap Technical Indicator in Python
Heatmaps offer a quick and clear view of the current situation. In trading, we can use them with correlations but we can also use them to detect imminent reactions or to confirm the underlying trend. This article discusses the creation of the heatmap on the values of the RSI.
The Market Regime
The market’s regime is its current state and can be divided into:
- Bullish trend: The market has a tendency to make higher highs meaning that the aggregate direction is upwards.
- Sideways: The market has a tendency to to range while remaining within established zones.
- Bearish trend: The market has a tendency to make lower lows meaning that the aggregate direction is downwards.
Many tools attempt to detect the trend and most of them do give the answer but we can not really say we can predict the next state. The best way to solve this issue is to assume that the current state will continue and trade any reactions, preferably in the direction of the trend.
For example, if the EURUSD is above its moving average and shaping higher highs, then it makes sense to wait for dips before buying and assuming that the bullish state will…