Volume Momentum

The Volume Momentum indicator analyzes shifts in market momentum through normalized volume data to help traders identify trend strength and potential reversals. By combining percentile-based normalization with smoothed moving averages, the tool provides a responsive view of whether volume is driving price action in a bullish or bearish direction.

Usage

The tool is primarily used to identify the direction of market momentum based on volume flow. When the volume momentum oscillator is above the zero baseline (typically highlighted in green), it suggests a bullish trend where positive volume is dominant. Conversely, when the oscillator falls below zero (highlighted in red), it indicates a bearish trend driven by negative volume.

Traders can also observe crossovers between the main momentum line and its offset value to detect early signs of momentum shifts. The indicator includes visual aids such as background shading and bar coloring to align the chart price action with the calculated volume trend.

Details

The script functions by first assigning a sign to the volume based on candle polarity (positive for green candles, negative for red). This signed volume is then normalized against its rolling average to account for varying market activity levels.

To improve statistical robustness, the normalized volume undergoes a linear interpolation percentile calculation. This process compares current volume values against a historical lookback window. Finally, a series of smoothing techniques—Weighted Moving Average (WMA) and Exponential Moving Average (EMA)—are applied to the data to filter out market noise and produce the final momentum oscillator.

Settings

Calculation

• Volume Rolling Mean: The period used to calculate the average volume for normalization.
• Percentile Interpolation Length: The range of bars used for the percentile calculation.
• Percentile Level: The specific percentile threshold to track (default is 50 for the median).
• WMA Smoothing Period: The length of the Weighted Moving Average applied to the percentile volume.
• Smoothing Period: The length of the EMA used to finalize the momentum line.

Plot Settings

• Show Trend Background Colouring: Toggles the background highlights based on the momentum direction.
• Color Bars based off Trend: Enables or disables bar coloring on the price chart relative to the momentum state.

FAQ

How do I use the Volume Momentum for mean reversion?

While designed for trend following, users can adapt it for mean reversion by looking for extreme momentum readings and trading in the inverse direction of the signal, though this requires careful risk management and may not be suitable for highly correlated assets.

Can I set alerts for trend changes?

Yes, the script includes built-in alert conditions for momentum zero-line crossovers (trend changes) and crossovers between the momentum line and its offset value.

How can I access Volume Momentum?

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