High-Low Correlation
period = 14 (2–200) Overview
The High-Low Correlation indicator provides unique insights into market structure by measuring how synchronized the highs and lows move relative to each other. In healthy trending markets, highs and lows typically move in tandem with high correlation. However, during market transitions, consolidations, or volatility expansions, this correlation breaks down, providing early warnings of potential changes in market behavior.
In 2025's market environment where traditional correlations between asset classes have broken down since 2022 (with stocks and bonds moving together for the first time in 30 years), this indicator becomes particularly valuable for understanding internal market structure. High correlation confirms orderly price movement, while declining correlation often precedes volatility expansions and structural market shifts, similar to how VCP (Volatility Contraction Patterns) signal upcoming breakouts.
Interpretation & Trading Signals
Correlation Readings & Market States:
- 0.8 to 1.0: Very high correlation - Strong trending market with orderly price action
- 0.5 to 0.8: Moderate correlation - Normal market conditions, healthy structure
- 0.2 to 0.5: Low correlation - Market uncertainty, potential transition phase
- -0.2 to 0.2: No correlation - Choppy, directionless, high noise
- Below -0.2: Negative correlation - Unusual market stress, potential reversal
Trading Applications (2025):
- Rising Correlation: Market structure improving - trend continuation likely
- Falling Correlation: Structure breaking down - prepare for volatility expansion
- Correlation Divergence: When price trends but correlation falls - warning signal
- Volatility Prediction: Low correlation often precedes ATR expansion
Market Structure Integration:
- Combine with VCP: 6-12 week patterns with declining volatility confirm setups
- Volume Analysis: Declining volume with low correlation = accumulation phase
- Risk Management: Exit positions when correlation breaks down in trends
- Multi-Indicator: Use with ATR, Bollinger Bands for volatility confirmation
Example Usage
Code examples will be available once the Rust implementation is complete.