Liquidity weighted Supertrend

The Liquidity weighted Supertrend indicator is a trend-following tool that enhances the traditional Supertrend calculation by weighting price movements according to trading volume. By incorporating liquidity into its core logic, the tool aims to provide more accurate trend detection and increased responsiveness to significant market activity.

Usage

The indicator can be used to identify market direction and potential entry or exit points based on the relationship between price and the liquidity-weighted baseline.

• Trend Identification: A lime-colored line indicates a bullish trend, suggesting that upward momentum is supported by liquidity. Conversely, a red line indicates a bearish trend.
• Entry Signals: The script plots green triangles (buy) when the price crosses above the Supertrend line and red triangles (sell) when the price crosses below it.
• Mode Selection:
  • Aggressive Mode: Uses a faster lookback period for the Liquidity Weighted Moving Average (LWMA), making it suitable for short-term trading and capturing quick market shifts.
  • Smoothed Mode: Utilizes a slower lookback period, offering more stable signals designed for long-term trend following and reducing market noise.

Details

The Liquidity weighted Supertrend deviates from the standard version by replacing the typical price input (HL2) with a Liquidity Weighted Moving Average (LWMA).

The LWMA is calculated by multiplying the volume by the closing price to determine a liquidity factor. This ensures that price levels with higher trading activity carry more weight in the final calculation. This weighted price is then used alongside the Average True Range (ATR) to project the upper and lower bands that define the Supertrend line. The script also includes Multi-Timeframe (MTF) functionality, allowing users to project trend lines from higher timeframes onto their current chart.

Settings

• Supertrend Type: Toggles between "Aggressive" and "Smoothed" calculation modes.
• Factor: A multiplier that adjusts the sensitivity of the Supertrend line relative to market volatility.
• Supertrend Length: The lookback period for the ATR calculation used to determine the band width.
• Fast MA length: Defines the lookback period for the liquidity calculation used in Aggressive mode.
• Slow MA length: Defines the lookback period for the liquidity calculation used in Smoothed mode.
• Higher Timeframe: Allows the user to select a different timeframe for the indicator calculation, enabling multi-timeframe analysis.

FAQ

How do I access the Liquidity weighted Supertrend?

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

What is the difference between Aggressive and Smoothed modes?

Aggressive mode uses the "Fast MA length" for its liquidity weighting, resulting in a more reactive line, while Smoothed mode uses the "Slow MA length" for a more stable trend indication.

Can I use this on any timeframe?

Yes, the indicator is adaptive; however, the MTF setting allows you to view higher-timeframe trends regardless of the chart's current resolution.