Shift Theory

Shift Theory is a technical analysis ratio indicator that studies how entire bars on a bar chart shift to change the direction of a trend or price. The theory was originally developed by David Zielinski and it is based on empirical evidence from watching how bars on a chart shift and affect price changes.
Observations
Shift theory ratios are based on the following observations:
* Consolidating chart patterns usually have a high percentage of bars overlapping each other.
* Up trending charts have higher highs and higher lows.
* Down trending charts typically have lower lows and lower highs.
The Shift Theory approach focuses on breaking down each component of a trend and giving each a value that is specific to that measurement.
Average True Range Issue and Shift Theory
Shift Theory takes into account the Average True Range of a bar chart and how it affects technical analysis. In Shift Theory the Average True Range is considered the natural average range that an instrument movers during a particular period and that information needs to be filtered. This range is a form of statically analysis created by the auction or the price discovery process. Because of this natural buying and selling cycle that happens within this range of each bar. Shift Theory does not include the closing price in the calculation because of the large amounts of random data that are produced on each bar. The closing price is always moving and any calculations that are based on that data will always be random.
Calculations
Shift Ratios are a combination of an average based calculation converted into an oscillator based plot output on a scale of 0 to 100. When a ratio is at 0 then that indicates that the particular trend, it measures do not exist at that moment. Any measurement above 0 is an indication that shows that particular part of a trend it measures is present.
Inside Shift Ratio
The Inside Shift Ratios are the percentage of the current bar overlapping the previous bar. Shift Theory believes that if bars overlap a higher percentage of the time than the market is consolidating and that increases the Inside Shift Ratio reading. A reading of 0 would indicate that the current bar does not have any overlap over the previous bar. A reading of 100 would indicate the current bar is overlapping 100 percent of the previous bar. The Inside Shift Ratio is color coded yellow to represent caution or to slow down like a street light system.
Upper Shift Ratio
The Upper Shift Ratio is based on the difference between the current bars, high minus the previous bars high. In Shift Theory an uptrend is defined by bars making new highs compared to the previous bar. The Upper Shift Ratio is color coded green to represent rising bars or buying activity.
Lower Shift Ratio
The Lower Shift Ratio is based on the difference of the previous bars low minus the current bars low. In Shift Theory a downtrend is defined by bars making lower lows. The Lower Shift Ratio is color coded red to represent falling bars or selling activity.
Reference Points
BaseLine
The BaseLine is a reference point that is set by the user that can be any fixed number between 0 to 100 but the proper point it is designed for is between 1 to 5. What the BaseLine does is set a reference value so that the Upper or Lower Shift Ratios can be compared to. It is the point that if a ratio crosses over then the trend is breaking out of its base.
TrendPoint
The TrendPoint serves as another reference point that is set by the user. It is used to identify choppy conditions and as an overbought or sold level to identify reversals.
Analysis Interpretation
Uptrends
Uptrend’s are defined by the Upper Shift Ratio crossing above or being above the BaseLine. For this indication to happen the current bar needs to be making a new high. Along with a rising Upper Shift Ratio the Lower Shift Ratio should be falling or at a value of 0. According to Shift Theory an uptrend is defined by a series of higher highs and higher lows.
Downtrends
Downtrends are defined by the Lower Shift Ratio crossing above the BaseLine or this ratio being above the BaseLine. At the same time the Upper Shift Ratio should be falling or at 0. In Shift Theory a down trend is defined by a series of lower lows a lower highs.
Choppy Conditions
Choppy conditions are defined mainly by the Inside Shift Ratio being above the TrendPoint. At the same time the Upper and Lower Shift Ratios should be at the lower end of the scale indicating bars are consolidating.
Reversals
Reversals happen in Shift Theory when either the Upper or Lower Shift Ratio crosses above the TrendPoint and then cross back under or has an extremely high reading. At the same time if the trend was strong enough then the ratio that measures the opposite trend will cross above the BaseLine at the giving confirmation to the reversal.

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