Volume Based Price Action

The Volume Based Price Action indicator identifies potential trend reversals by combining candlestick pattern recognition with volume confirmation to help traders evaluate market psychology.

Usage

The indicator can be used to spot key moments where buyers or sellers exert dominance over price action. It specifically highlights two primary reversal structures: Engulfing patterns and Pin Bars.

Traders can use the signals as follows:

• Bullish Signals: Represented by green circles below the bar, these appear when a bullish pin bar or bullish engulfing pattern occurs, often at local lows.
• Bearish Signals: Represented by red circles above the bar, these appear when a bearish pin bar or bearish engulfing pattern occurs, often at local highs.

The signals are most effective when used to confirm existing biases or to identify exhaustion points in a trend rather than as standalone entry signals.

Details

The script analyzes price action over a user-defined lookback period to determine if a pattern is occurring at a significant high or low.

• Pin Bars: Identified based on the ratio between the candle body and the total wick length, ensuring the "tail" is sufficiently long compared to the "nose."
• Engulfing Patterns: These are detected when the current candle body significantly exceeds the size of the previous candle's body, indicating a strong shift in momentum.
• Volume Filter: When enabled, the script requires the current volume to be the highest within the specified length, ensuring the price action is backed by significant market participation.

Settings

• Length: The lookback period used to determine the highest volume and relative price extremes (highest high/lowest low).
• Use Volume: When enabled, patterns will only be highlighted if the volume is the highest within the defined length.
• Pin Bar Tolerance (%): Controls how small the body must be relative to the wick to qualify as a pin bar.
• Pin Bar Wick Ratio (%): Determines the required ratio between the top and bottom wicks to identify the direction of the pin bar.
• Engulfment Ratio (%): The percentage by which the current candle body must exceed the previous candle body to be considered "engulfing."

FAQ

How do I use the Volume Based Price Action tool?

You can use it to identify potential exhaustion or reversal points by looking for green or red circles that align with key support and resistance levels.

What patterns does this indicator detect?

Currently, the tool detects Bullish/Bearish Pin Bars and Bullish/Bearish Engulfing patterns, with an optional filter for relative volume spikes.

How can I access this script?

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