Broadening candles

At the end of a trend, it is common to see high volatility (large variation between open and close prices). This could happen as result of “dumb” money rushing to enter a late trend, while the “smart” money is exiting their trades: candles are much larger compared to the earlier ones.

This property could be captured by an index that assess if prior candles are narrower. That is: the range (difference between high and low) of the candlesdecreases away from the current period.

Figure 4.22: Broadening candles