Blockchain Fundamentals: Liquidity Cycle Momentum

The Blockchain Fundamentals: Liquidity Cycle Momentum indicator tracks global liquidity trends by synthesizing data from major central banks and currency indexes to identify cyclical shifts in market momentum. This tool is designed to help traders pinpoint potential turning points in the market by analyzing the year-over-year percentage change of a custom Liquidity Index through a momentum-based oscillator.

Usage

The indicator is primarily used to identify cyclical highs and lows in global liquidity, which often precede major market moves.

• Buy Signals: Represented by green circles, these are triggered when the momentum oscillator crosses upward from an oversold condition (typically below -75), suggesting an influx of liquidity into the system.
• Sell Signals: Represented by maroon circles, these occur when the oscillator crosses below its signal line while in an overbought state or following a peak in the YoY liquidity change, suggesting a contraction or cooling of liquidity.
• Visual Aids: Users can enable background coloration to highlight bars where signals occur, with yellow/green for buy signals and fuchsia/red for sell signals.

The indicator is most effective on higher timeframes (e.g., 2-month or monthly) to filter out short-term noise and capture significant macroeconomic shifts.

Details

The script constructs a unique "Liquidity Index" by aggregating data from several key sources:

• Currency influence: A ratio between the China 10-Year Yield (CN10Y) and the US Dollar Index (DXY).
• Central Bank Balance Sheets: Data from the US Federal Reserve (USCBBS), Bank of Japan (JPNASSETS), People's Bank of China (CNCBBS), and the European Central Bank (ECBASSETSW).

The indicator calculates the Year-over-Year (YoY) percentage change of this index and then applies the Chande Momentum Oscillator (CMO) to the results. This transformation highlights the rate of change in liquidity, making it easier to spot trend exhaustions and reversals. A limited historical data workaround is included to maintain calculation integrity during the early stages of a chart's history.

Settings

• Select Timeframe: Determines the timeframe from which the external liquidity data is requested (default is 2M).
• Enable Background Coloration?: Toggles the chart background highlights for buy and sell signals.
• Overbought: Sets the upper threshold for the momentum oscillator (default 75).
• Oversold: Sets the lower threshold for the momentum oscillator (default -75).
• Momentum Length: Defines the lookback period for the Chande Momentum Oscillator calculation.

FAQ

How do I use the signals from this indicator?

Buy signals suggest liquidity is expanding from a trough, potentially favoring risk-on assets, while sell signals suggest liquidity is peaking or contracting, indicating potential market headwinds.

What assets are best suited for this tool?

Since this indicator tracks global macro liquidity, it is best applied to major indices, Bitcoin, or commodities that are sensitive to central bank policy and dollar strength.

How do I access Blockchain Fundamentals: Liquidity Cycle Momentum?

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