MACD-V Volatility Normalized Momentum

The MACD-V Volatility Normalized Momentum indicator provides a volatility-adjusted version of the classic MACD, allowing for more consistent momentum analysis across different asset classes and timeframes.

Usage

The MACD-V can be used as a "boundless oscillator" to identify trend momentum and potential overextended market conditions. Unlike the standard MACD, which is unbounded and varies significantly between instruments, the MACD-V uses an ATR-based normalization to provide a more standardized scale.

• Trend Direction: When the MACD-V line is above the zero (middle) band, it indicates bullish momentum. Conversely, when it is below the zero band, it indicates bearish momentum.
• Overbought/Oversold: The default bands are set at 150 and -150. Based on historical research, these levels represent areas where price action may be overextended. Crossing above 150 suggests strong bullish momentum that may be reaching a peak, while crossing below -150 suggests strong bearish momentum.
• Zero-Line Crossovers: Traders often look for crossovers of the zero line as signals for potential trend shifts or entry points.

Details

Developed by Alex Spiroglou, the MACD-V aims to eliminate the shortcomings of the classic MACD by normalizing the difference between the fast and slow exponential moving averages (EMAs) by the Average True Range (ATR).

The calculation follows this formula: [(Fast EMA - Slow EMA) / ATR] * 100

By dividing the MACD value by volatility (ATR), the indicator becomes a hybrid oscillator. This allows for pattern recognition and level analysis that would be impossible with the standard MACD, as the values are now comparable across different symbols regardless of their absolute price or volatility levels.

Settings

• Fast Length: The period for the shorter-term Exponential Moving Average (default is 12).
• Slow Length: The period for the longer-term Exponential Moving Average (default is 26).
• ATR Length: The period used to calculate the Average True Range for volatility normalization (default is 26).
• Source: The price data used for the EMA calculations (typically the close price).
• MACD-V Line: Customization options for the color and visibility of the main MACD-V plot.

FAQ

How do I use the MACD-V for different markets?

Because the indicator is volatility-normalized, the same overbought/oversold levels (like 150/-150) can be applied to various symbols; however, users are encouraged to backtest and find specific ranges relevant to the particular instrument they are analyzing.

What is the advantage over the standard MACD?

The standard MACD is an absolute price oscillator, meaning its values change based on the price of the asset. The MACD-V allows for consistent comparison between assets and defines clearer boundaries for momentum strength.

How can I access the MACD-V Volatility Normalized Momentum?

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