ColorSMA

ColorSMA Indicator – Description & Usage Guide

Overview

The ColorSMA indicator is a dynamic trend-following moving average designed to adapt to volatility and provide clearer visual cues for traders. Unlike a standard simple moving average (SMA), this tool applies a volatility filter using a standard deviation channel and then smooths the price before calculating the moving average.

The result is a single line on the chart that changes color depending on its trend direction:

• Blue (Uptrend) – The moving average is rising compared to the previous bar.
  
• Red (Downtrend) – The moving average is falling compared to the previous bar.
  

This visual coloring makes it easier to spot the trend direction at a glance.

How It Works

1. Baseline SMA

• The script first calculates a classic SMA based on the selected Length (default = 9).
  
• This baseline acts as the foundation of the indicator.
  

1. Volatility Filter (SD Channel)

• A standard deviation multiplier is applied to create an upper and lower channel around the SMA.
  
• If price moves outside this channel, it gets “clamped” back within the channel range.
  
• This reduces noise and prevents false signals in highly volatile conditions.
  

1. Smoothed Price (Extra Smooth)

• The filtered price is then smoothed with another SMA (default = 3).
  
• This step makes the line cleaner and easier to interpret.
  

1. Trend Coloring

• If the current smoothed SMA is higher than its previous value → the line is Blue.
  
• If it is lower → the line is Red.
  
• This simple but effective color-coding highlights trend shifts without cluttering the chart.
  

Inputs & Settings

• Source: The price source used in the calculation (default = close).
  
• Length: The SMA period length (default = 9).
  
• Extra Smooth [1=None]: Additional smoothing for the final line (default = 3). Lower values make it more responsive, higher values make it smoother.
  
• Width (Volatility Filter – SD Channel): The multiplier applied to the standard deviation. Controls how wide the channel is (default = 0.3).
  
• Length (Volatility Filter – SD Channel): The period for calculating standard deviation (default = 1).
  

What You See on the Chart

• A single moving average line that changes color:

• Blue (Up) = trend strength or bullish direction.
  
• Red (Down) = trend weakness or bearish direction.
  

• The line itself is already filtered through a volatility channel and smoothing, so it reacts to market conditions while reducing noise.
  

How to Use It

Trend Identification

• Use the color changes (Blue/Red) to quickly identify short-term trend shifts.
  
• Blue phases suggest bullish bias, Red phases suggest bearish bias.
  

Entry/Exit Guidance

• Traders can align entries with the trend color (e.g., buy when it turns Blue, sell/short when it turns Red).
  
• Combine with price action or other indicators for confirmation.
  

Volatility Filtering

• Adjust the Width and SD Length parameters to tune how sensitive the indicator is to price fluctuations. Narrower channels give more signals; wider channels filter out more noise.
  

Smoothing Control

• If you prefer faster reactions, lower the smoothing value.
  
• If you want steadier signals, increase smoothing.
  

Summary

The ColorSMA is a visually enhanced moving average that adapts to volatility and simplifies trend detection. It is especially useful for traders who prefer:

• Clean charts with minimal clutter.
  
• Clear, color-coded signals for trend direction.
  
• Flexibility to adjust responsiveness via smoothing and channel width.
  

This indicator is best used as a trend confirmation tool or combined with other strategies such as support/resistance, candlestick patterns, or oscillators for robust trade setups.