How Do We Use It?
We use the Top Hat indicator to understand when a stock is getting statistically overheated or overly sold.
Top Hat works on the premise of Average True Range, but the underlying calculation of the indicator is much more nuanced. Behind the scenes Top Hat is scanning the ATRs of three different timeframes to minimize noise and maximize the effect of the signals it provides.
By automatically scanning these three timeframes all at once and only showing a signal when all three are aligned the Top Hat indicator is an early warning that the trend may be reversing after reaching statistically significant turning points.