Distance From Moving Average

The Distance From Moving Average indicator measures and visualizes the displacement between the current market price and a selected moving average to identify overextended conditions and mean reversion opportunities.

Usage

The Distance From Moving Average tool is primarily used to identify how far the current price has deviated from its average value. Traders can use this to spot potential exhaustion points where the price might revert to the mean.

• Overextension Analysis: By tracking the historical highs and lows of the distance metric, users can identify extreme levels where the price is statistically likely to pull back toward the moving average.
• Trend Strength: A widening spread or increasing percentage distance suggests a strengthening trend, while a narrowing distance may indicate fading momentum.
• Calculation Methods: The script allows switching between "Spread" (absolute point difference) and "Percentage" (relative change), making it adaptable for different asset classes and volatility environments.

Details

The indicator functions by calculating a user-defined moving average and comparing it against the closing price. The output is displayed as a histogram in a separate pane.

• Moving Average Selection: The script supports five distinct types: Simple (SMA), Exponential (EMA), Weighted (WMA), Volume Weighted (VWMA), and Hull (HMA).
• Extreme Tracking: It maintains a running record of the "Highest High" and "Lowest Low" achieved by the distance metric since the script was loaded, providing fixed boundaries for extreme price action.
• Pivot Points: The indicator utilizes pivot point logic to identify and label "Historic Highs and Lows" within the oscillator pane based on a user-defined lookback period.

Settings

• Source: Determines the price data used for the moving average calculation (e.g., Close, Open, High, Low).
• Length: Sets the period for the selected moving average.
• Calculation Type: Toggles between "Spread" (Price - MA) and "Percentage" ((Price - MA) / MA * 100).
• MA Type: Selects the specific moving average algorithm (EMA, SMA, WMA, VWMA, or HMA).
• Highest High/Lowest Low: Options to toggle the visibility of the absolute highest and lowest distance lines recorded.
• Historic Highs/Lows: Options to toggle labels for local peaks and troughs in the distance series.
• Lookback Length: Defines the number of bars used to detect local pivot highs and lows for historic labels.
• Current Value Label Settings: Controls the visibility, size, and horizontal position of the labels displaying the current distance and extreme values.

FAQ

How do I interpret the histogram colors? The histogram displays green bars when the price is above the moving average and red bars when the price is below the moving average.

What is the difference between Spread and Percentage modes? Spread shows the raw point or dollar difference, which is useful for fixed-value assets. Percentage shows the relative deviation, which is better for comparing different assets or analyzing long-term charts where price levels change significantly.

How do I access the Distance From Moving Average indicator? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.