Cumulative Volume Delta Z Score

The Cumulative Volume Delta Z Score indicator provides a standardized view of market buying and selling pressure by applying Z-Score normalization to Cumulative Volume Delta (CVD) data. This statistical approach helps traders identify significant volume imbalances and potential trend reversals while filtering out common market noise.

Usage

The tool is primarily used to gauge market sentiment and identify overextended conditions.

• Trend Identification: A Z-Score above 0 generally indicates a bullish regime (positive CVD), while a Z-Score below 0 indicates a bearish regime. The histogram bars change color based on the relationship between the current Z-Score and its previous value to show momentum shifts.
• Extreme Conditions: The indicator plots standard deviation levels (±1σ, ±2σ). When the Z-Score reaches extreme levels (±3σ to ±4σ), it highlights potential overbought or oversold conditions where the volume imbalance is statistically significant.
• Divergence Trading: The script automatically detects regular and hidden divergences between price and the Z-Score.
  • Regular Bullish: Price makes a lower low while the Z-Score makes a higher low.
  • Hidden Bearish: Price makes a lower high while the Z-Score makes a higher high.
• Chart Synchronization: Users can enable "Paint Candles" to overlay trend colors directly onto the main price chart.

Details

The script functions by first calculating the Cumulative Volume Delta (CVD) using a requested lower timeframe to aggregate the net difference between buying and selling volume. This raw CVD data is then processed using a Z-Score formula: (Current CVD - Mean CVD) / Standard Deviation. This normalization allows for a comparison of current volume flow against historical averages regardless of the asset's absolute volume levels.

Settings

Cumulative Volume Delta

• Anchor Timeframe: Sets the higher timeframe for cumulative delta aggregation.
• Custom Lower TF: Allows manual selection of the sub-period used to calculate intra-bar volume delta.

Z Score Calculation

• Z Score Period: The lookback window used to calculate the mean and standard deviation for normalization.

UI Settings

• Show Standard Deviation Levels: Toggles the visibility of the 0, ±1, and ±2 levels.
• Show Extreme Levels: Displays highlighted zones at the ±3 to ±4 standard deviation marks.
• Paint Candles: Colors the price chart bars based on the current Z-Score trend.
• Overbought/Oversold Color: Customizes the colors used for extreme levels and divergences.

Smoothing

• Smooth Z-Score: Applies a Simple Moving Average (SMA) to the resulting Z-Score.
• Use Raw CVD Smoothed: When enabled, displays a smoothed version of the raw CVD instead of the Z-Score.

Divergences

• Show Detected Divergences: Toggles the visibility of divergence labels and lines.
• Pivot Lookback (Right/Left): Adjusts the sensitivity of pivot detection for divergence patterns.

FAQ

How do I use the divergence signals?

Divergence signals (labeled 'R' for regular and 'H' for hidden) indicate discrepancies between price action and volume flow. Regular divergences often suggest a reversal, while hidden divergences typically suggest trend continuation.

What do the extreme color fills mean?

The colored bands at the top and bottom of the indicator represent extreme statistical deviations (3 to 4 standard deviations). When the histogram enters these zones, it suggests the current volume pressure is highly unusual compared to the recent lookback period.

How can I access Cumulative Volume Delta Z Score?

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