Dynamic Zones Polychromatic Momentum Candles

The Dynamic Zones Polychromatic Momentum Candles indicator provides a sophisticated candle-coloring system based on momentum levels processed through Jurik Filtering and adaptive Dynamic Zones. It aims to visualize overbought and oversold momentum states directly on the chart using a smooth, gradient-based approach.

Usage

The indicator can be used to identify trend exhaustion and potential reversals by observing the color shifts of the price candles.

• Trend Identification: Candles shifting toward the "Up color" (green by default) indicate bullish momentum growing toward the upper dynamic zone.
• Reversal Signals: When the momentum value crosses the upper or lower dynamic zones, it suggests the market has reached a statistical extreme.
• Gradient Interpretation: Unlike fixed-color indicators, the polychromatic (gradient) coloring allows traders to see the intensity of the momentum; as the color becomes more saturated, the price is closer to the dynamic boundaries.

Details

The script combines several advanced technical concepts:

• Momentum Calculation: It calculates a weighted momentum value using the square root of the lookback period to distribute weight.
• Jurik Filtering: This provides a low-lag, highly smoothed version of the momentum value, making it more responsive to price action than standard moving averages.
• Dynamic Zones: Instead of using fixed levels (like 70/30 in RSI), this tool uses statistical probabilities to create zones that evolve with market volatility. It calculates the empirical distribution of the indicator over a lookback period to determine where the top and bottom extremes lie based on user-defined probabilities.

Settings

Basic Settings

• Heikin-Ashi Better Calculation Type: Choose between AMA, T3, or Kaufman for the internal smoothing of Heikin-Ashi source types.
• Source: Select from over 30 source types, including standard price points, Heikin-Ashi, and trend-biased sources.
• Period: The lookback period used for the initial momentum calculation.

Jurik Filter Settings

• Jurik Smoothing Period: Adjusts the length of the Jurik Filter applied to the momentum.
• Jurik Phase: Controls the lag/overshoot trade-off of the Jurik smoothing process.

Dynamic Zone Settings

• Dynamic Zone Period: The lookback window used to calculate the statistical distribution for the zones.
• Dynamic Zone Buy/Sell Probability: Sets the percentage of data points expected to fall outside the zones (e.g., 0.05 represents the 5% extremes).

UI Options & MA Inputs

• Up/Down color: Customizes the gradient endpoints for candle coloring.
• Moving Average Inputs: Specific parameters for KAMA or AMA smoothing when selected in the source types.

FAQ

How do I interpret the candle colors?

The colors represent the position of momentum relative to the dynamic zones. A full "Up color" means momentum is at or above the upper zone, while a full "Down color" means it is at or below the lower zone. Intermediate colors show the relative position between these extremes.

What makes Dynamic Zones better than fixed levels?

Fixed levels do not account for changes in market volatility. Dynamic Zones automatically adjust their width based on recent indicator behavior, ensuring that overbought/oversold signals remain statistically significant in both trending and ranging markets.

How do I access this indicator?

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