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MMI

Market Meanness Index (MMI) is a technical indicator developed to determine whether the market is in a trending or sideways (chaotic) state.

To use the indicator, you need to use the MarketMeannessIndex class.

Description

The Market Meanness Index (MMI) is a tool that helps traders determine the nature of the current market - whether it is trending or sideways. The name "Meanness" reflects the idea that the market sometimes behaves "meanly" or unpredictably towards traders, especially when in a sideways movement.

MMI is based on counting the number of price value pairs (usually closing prices) that do not follow a simple linear pattern, and their ratio to the total number of analyzed pairs. The indicator measures the "chaos" or "randomness" of price movement over a specific period.

The index oscillates from 0 to 100:

  • Low values (usually below 50) indicate predominance of trending movement
  • High values (usually above 50) indicate predominance of sideways or chaotic movement

Parameters

The indicator has the following parameters:

  • Length - calculation period (default value: 20)

Calculation

Market Meanness Index calculation involves the following steps:

  1. Create a set of consecutive closing price (Close) pairs within the given Length period.

  2. Count the number of "non-sequential" pairs. A pair is considered non-sequential if it does not follow the linear pattern typical of a trend. If two consecutive pairs (P1, P2) and (P2, P3) have opposite directions (different difference signs), the pair is considered non-sequential.

  3. Calculate MMI as a percentage ratio:

    MMI = (Number of non-sequential pairs / Total number of pairs) * 100

Formally, this can be represented as:

  1. For each trio of consecutive prices (Close[i-2], Close[i-1], Close[i]), check:

    • If (Close[i-1] - Close[i-2]) * (Close[i] - Close[i-1]) < 0, the pair is considered non-sequential
    • Count the total number of such pairs

  2. MMI = (Number of non-sequential pairs / (Length - 2)) * 100

Interpretation

The Market Meanness Index can be interpreted as follows:

  1. Indicator Levels:

    • MMI > 50: Market is in a sideways or chaotic state
    • MMI < 50: Market is in a trending state
    • The closer MMI is to 100, the more chaotic the market
    • The closer MMI is to 0, the more pronounced the trend

  2. Trading Strategy Application:

    • When MMI is high (>50), use strategies oriented towards sideways market (e.g., range trading, oscillators)
    • When MMI is low (<50), use trend strategies (e.g., trend following)

  3. Dynamics of Changes:

    • Decrease in MMI from high levels may signal the formation of a new trend
    • Increase in MMI from low levels may indicate trend completion and transition to consolidation

  4. Extreme Values:

    • Very low values (MMI < 20) may indicate a strong trend, but also potential overbought/oversold conditions
    • Very high values (MMI > 80) indicate an extremely chaotic market where it's difficult to apply any strategies

  5. Signal Filtering:

    • MMI is often used as a filter for other indicators:
      • Trend indicator signals (MA, MACD) are more reliable at low MMI
      • Oscillator signals (RSI, Stochastic) are more reliable at high MMI

  6. Combining with Other Indicators:

    • MMI works well in combination with ADX (Average Directional Index)
    • Low MMI and high ADX confirm a strong trend
    • High MMI and low ADX confirm a sideways market

  7. Timeframes:

    • MMI can be used on different timeframes to determine market character
    • Long-term MMI helps determine the market's primary state
    • Short-term MMI helps choose an appropriate strategy for current conditions

indicator_market_meanness_index

See Also

ChoppinessIndex ADX VHF BalanceOfPower

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