Divergence Volume

The Divergence Volume indicator identifies shifts in market sentiment by comparing the dollar-denominated volume against the instrument's actual traded volume to highlight potential whale accumulation and trend reversals.

Usage

The tool is primarily used to spot divergences between price action and volume flow. When the dollar-volume metric (green line) crosses the actual volume metric (red line), it signals a change in the intensity of capital entering or leaving the market.

• Bullish Signal: A crossover where the dollar-volume (green) rises above the actual volume (red) suggests that higher-value transactions are dominating, often preceding a market rally.
• Bearish Signal: A crossunder where the dollar-volume falls below the actual volume can indicate a lack of high-value support, warning of an impending price drop or "trouble."
• Threshold Levels: The indicator includes horizontal levels (defaulted at 30 and 70) to identify overbought or oversold conditions in volume intensity.

Details

The script calculates the dollar volume by multiplying the median price (HL2) by the volume. It then applies a percent rank over a user-defined lookback period to normalize both the dollar volume and the raw volume. By smoothing these ranked values with a Simple Moving Average (SMA), the indicator provides a clear visual representation of how current volume activity compares to historical norms. This helps traders identify when "whales" are accumulating positions or when the market is becoming overextended.

Settings

• Size: Determines the lookback period (length) used for the percent rank calculation and the smoothing SMA.
• Line 1: Sets the lower horizontal threshold level, typically used to identify oversold volume conditions.
• Line 2: Sets the upper horizontal threshold level, typically used to identify overbought volume conditions.

FAQ

How do I interpret the green and red lines?

The green line represents the smoothed percent rank of dollar volume, while the red line represents the smoothed percent rank of the actual traded volume. Their interaction signals changes in the "quality" of volume.

What do the horizontal lines indicate?

The lines at 30 and 70 act as boundaries. When the volume metrics exceed these levels, it suggests that the current volume intensity is at an extreme relative to the historical period defined in the "Size" setting.

How can I access Divergence Volume?

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