The SQN (developed by Van Tharp) measures the average % change from close to close to the previous 100 days and then square roots it. This is how we quantify bullish or bearish, if the change is positive on average for the past 100 trading days, that’s bullish and likewise bearish if negative.
This methodology is trailing, so the SQN is a trailing indicator, and that’s important to note. The SQN isn’t there to be a holy grail super classified highly fragile high win rate indicator that will tell you when to buy the next 24% up move or to short a market meltdown.
Rather it’s more like a calendar. If you know that it’s January and you are in Montana, you are more likely to need a heavy coat, boots, hat, gloves and you can pretty much be guaranteed you won’t need a tank top and flip flops.
The SQN is similar because now we can quantitatively recognize the “season” we are in. Like a Calendar would suggest it’s winter and you know you are in Montana, the SQN is saying we are in Bear Volatile regime so let’s get the appropriate tools (attire in this analogy).
This methodology is trailing, so the SQN is a trailing indicator, and that’s important to note. The SQN isn’t there to be a holy grail super classified highly fragile high win rate indicator that will tell you when to buy the next 24% up move or to short a market meltdown.
Rather it’s more like a calendar. If you know that it’s January and you are in Montana, you are more likely to need a heavy coat, boots, hat, gloves and you can pretty much be guaranteed you won’t need a tank top and flip flops.
The SQN is similar because now we can quantitatively recognize the “season” we are in. Like a Calendar would suggest it’s winter and you know you are in Montana, the SQN is saying we are in Bear Volatile regime so let’s get the appropriate tools (attire in this analogy).