Directional Volatility and Volume

The Directional Volatility and Volume indicator is an oscillator that consolidates trend direction, volatility, and volume strength into a single visual tool to help traders identify high-conviction price movements.

Usage

The indicator can be used to confirm the strength of a price trend by analyzing whether significant price movements are supported by sufficient volume and directional volatility.

• Trend Confirmation: When the volatility columns (representing price action relative to a smoothed zero-line) break above the upper zone or below the lower zone, it indicates a strong directional move.
• Volume Analysis: The indicator incorporates smoothed volume to determine if the current trend has market participation behind it. A green volume profile suggests bullish pressure, while a red profile suggests bearish pressure.
• Confluence: Traders can look for instances where both directional volatility and volume align in the same direction to identify high-probability entry or exit points. For example, a bullish breakout occurs when the volatility bar breaks the upper zone while the volume bars are positive (green).

Details

The script calculates directional volatility by subtracting a smoothed median price (hl2) from a smoothed close price. This creates an oscillator that reflects how far price is deviating from its recent average.

The "Zone" lines are created by applying the same logic to high and low prices, creating a dynamic threshold that the volatility must overcome to signal a breakout. The volume component is derived by assigning a positive or negative value to volume based on whether the candle closed higher or lower than its open, then smoothing that value using a selectable moving average method.

Settings

Volatility

• Volatility period: Determines the lookback period for smoothing the close price used in volatility calculations.
• Volatility smoothing: Selects the moving average type (SMA, EMA, WMA, or RMA) for the volatility calculation.

Volume

• Volume period: Determines the lookback period for smoothing the directional volume.
• Volume smoothing: Selects the moving average type for the volume calculation.

Zone

• Zone period: Sets the lookback period for the zero-line and the upper/lower breakout zones.
• Zone smoothing: Selects the moving average type used for the zone calculations.

FAQ

How do I interpret the colored columns?

The indicator uses columns to display both volatility and volume zones. When the volatility oscillator exceeds the upper or lower boundaries, it changes color to reflect the breakout. The background volume zones change color based on whether the smoothed directional volume is positive or negative.

What are the alerts for?

The script includes built-in alerts for when volatility breaks the upper or lower zones, as well as when the smoothed volume crosses the zero line, allowing you to monitor for momentum shifts without watching the chart constantly.

How can I access Directional Volatility and Volume?

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