Volume Based Coloured Bars

The Volume Based Coloured Bars indicator visualizes the relationship between price action and trading volume by applying a multi-tone color gradient to price bars to highlight market conviction and trend strength. It allows traders to quickly identify whether a price move is supported by significant volume or if it lacks the participation necessary to sustain a trend.

Usage

The Usage section focuses on interpreting the color-coded bars based on price direction and volume intensity relative to a Simple Moving Average (SMA).

Bullish Price Action (Close > Open)

• Dark Green: Occurs when price moves up and volume exceeds 150% of its average. This indicates strong bullish conviction and institutional participation.
• Green: Occurs when price moves up and volume is between 50% and 150% of its average. This represents standard market participation where volume is neither exceptionally strong nor weak.
• Light Green: Occurs when price moves up but volume is less than 50% of its average. This suggests a lack of buying pressure, signaling that the upward move may be fragile or unsupported.

Bearish Price Action (Close < Open)

• Dark Red: Occurs when price moves down and volume exceeds 150% of its average. This indicates strong bearish conviction and heavy selling pressure.
• Red: Occurs when price moves down and volume is between 50% and 150% of its average. This represents typical selling activity within normal parameters.
• Light Red/Orange: Occurs when price moves down but volume is less than 50% of its average. This suggests that the downward move lacks significant selling participation and may be a low-volume retracement.

Details

The script calculates a Simple Moving Average (SMA) of volume over a user-defined period to establish a baseline for "normal" activity. It then compares the current bar's volume against this baseline using two specific thresholds: 150% for high volume and 50% for low volume.

By categorizing volume into three tiers (High, Medium, and Low) and overlaying this data onto price direction, the indicator filters out market noise. For instance, a breakout occurring on "Dark Green" bars is statistically more significant than a breakout on "Light Green" bars. While the default length is set to 21 (common for monthly cycles in stock markets), crypto traders often adjust this to 30 to account for 24/7 trading cycles.

Settings

• length: Sets the lookback period used to calculate the Simple Moving Average of volume. This average serves as the benchmark for determining if current volume is high, medium, or low.

FAQ

How do I interpret a "Light Green" or "Light Red" bar? These bars signify price movement on low volume (less than 50% of the average). They often indicate a lack of interest from major market participants and can suggest that a move is a "fakeout" or a temporary retracement rather than a true trend reversal.

Which markets is this indicator best suited for? The tool is effective across all markets that provide volume data, including Stocks, Futures, and Crypto. For Stocks, the default 21-period setting is often preferred, whereas 30 is frequently used for the Crypto market.

How can I access the Volume Based Coloured Bars indicator? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.