Follow the Volumes / Path of Least Resistance

8월 14일This indicator tracks price movements following significant volume increases. It identifies volume spikes by comparing recent average volume to a longer-term average. After a spike, it monitors price changes over a specified number of bars.

In plain English, the point of this is to “let the market show it’s hand”, vs. other common and preemptive methods of execution.

You can think of it as a better version of a volume up/down indicator which only uses opening and closing prices to identify "bullish" or "bearish" behavior.

To optimize this, I used a very small range chart, hence the small values. You will need to experiment with other values, ESPECIALLY the % change. If you do not do this, the indicator will generate a lot of noise.

The indicator has three main conditions:

1. Significant price increase, bullish: A green triangle appears below the bar.
2. Significant price decrease, bearish: A red triangle appears above the bar.
3. Price change within thresholds: A fuschia triangle appears, pointing up or down based on the overall (short-term) trend. This is common behavior during trends. A spike in volume will appear, and price simply does not budge. Volume/price is essentially declaring a new found value, in which case prices tend to follow the impulse movement (see market profile theory).

The color scheme is intuitive: green for positive moves, red for negative, and fuschia for subtle changes following the existing trend. Blue circles mark volume spikes for reference, which I recommend using only for reference, and disabling to remove unneeded noise.

Because this indicator "lags" in the sense of waiting for the market to show its hand, best opportunities are typically found on retests of the volume spikes themselves. On drives, however, the market will unlikely pullback, which (in my view) is one of its best use cases.

Bottom line, you will need to adjust the parameters to the instrument. This is not a plug and play solution, but far more accurate than those which are.

Settings, and what they mean:

Volume spike average bars: length for identification of high volumes. On smaller timeframes, such as my optimization period, you’ll want several bars. But on something such as a 5 minute or higher, only 1.

Lookback period: for identification of high volumes.

Volume Increase Threshold (%): % which constitutes a jump in volume

Bars After Spike: How long to wait for ensuing price movement. Also sensitive to the timeframe you are using. 1-2 recommended for 5m+, more for smaller range-based.

Negative Price Change Threshold (%): For red arrows (Volume + Price Movement)

Positive Price Change Threshold (%): Inverse of above

WMA Period for Stability Function: When price spikes on high volumes but does not move (price is “trapped” between negative and positive price change thresholds) the indicator marks direction (in fuchsia) in the direction of the underlying trend. This short-term MA identifies that trend.

Finally, because this indicator is volume-based, I recommend using primary instruments only and discourage its use on CFDs or other firm-generated instruments. Just use the primary. I would ignore signals off the open, which is subject to erroneous behavior. Other methods are far more effective for that.

This script is purposely uncomplicated. Feel free to play with settings and change code to suit your needs.

8월 30일

릴리즈 노트

Better positive/negative volume ID.