Dual Volume Divergence Line

The Dual Volume Divergence Line indicator identifies potential trend reversals and continuations by analyzing volume and price divergences through a specialized smoothing process.

Usage

The Dual Volume Divergence Line provides multiple ways to interpret market momentum and potential turning points:

• Trend Identification: The Middle Band serves as a primary trend filter. A green middle band suggests bullish momentum, while a red band indicates bearish momentum. Traders can look for the DVD line crossing above or below the Middle Band to confirm momentum shifts.
• Divergence Signals: The script automatically labels four types of divergences. Normal Bullish/Bearish labels indicate potential reversals, whereas Hidden Bullish/Bearish labels (marked "hid.") suggest trend continuations.
• Volatility Bands: When enabled, the upper and lower bands act as dynamic support and resistance. Prices breaking or reaching these bands can signal overbought or oversold conditions based on the volume-price relationship.
• Color-Coded Analysis: The DVD line itself changes color (blue/green for bullish, pink/red for bearish) based on its relationship with a secondary signal line, providing an immediate visual cue of short-term momentum.

Details

This tool is inspired by the Dual Volume Divergence Index (DVDI) concept. It functions by calculating two primary indices:

1. Positive Volume Index (PVI): Tracks price increases accompanied by volume.
2. Negative Volume Index (NVI): Tracks price decreases accompanied by volume.

The script calculates the divergence of these indices from their respective Weighted Moving Averages (WMA). These values are then combined and smoothed using a Volume-Weighted Moving Average (VWMA) and linear regression to create the "DVD Line." Unlike standard oscillators, this tool uses Root Mean Square (RMS) calculations for its volatility bands, offering a more adaptive response to market volatility than standard deviation-based bands.

Settings

Main Settings

• Dvd Sampling Period: Controls the lookback for the WMA used in calculating the underlying PVI and NVI signals.
• Band Width: Sets the period for the high/low lookback and the RMS calculation for the dynamic bands.
• Trailing Length: Adjusts the sensitivity of the linear regression used for the signal line.
• Source: Selects the price data used for all volume-index calculations (e.g., Close, HLC3).
• Multiplier: Scales the divergence calculation output.
• Show Bands: Toggles the visibility of the dynamic upper and lower bands on the chart.

Divergence

• Divergence Selection: Choose between "DVDI" (raw divergence) or "DVD Line" (smoothed line) for the divergence detection algorithm.
• Divergence Range: The pivot lookback required to confirm a high or low point.
• Show Normal Divergences: Toggles the display of standard reversal divergence labels.
• Show Hidden Divergences: Toggles the display of trend-continuation divergence labels.

FAQ

How do I interpret the "hid." labels?

These represent hidden divergences. A hidden bullish divergence occurs when price makes a higher low but the indicator makes a lower low, suggesting the uptrend is likely to continue.

What is the difference between DVDI and DVD Line in settings?

Selecting DVDI uses the raw divergence values for detection, which may lead to faster, more frequent signals. Selecting DVD Line uses the smoothed output, providing more filtered signals.

How can I access this script?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.