Reverse Moving Average Convergence Divergence

The Reverse Moving Average Convergence Divergence indicator provides a price-based interpretation of the MACD by calculating the specific price levels required to reach a targeted MACD value, offering a unique overlay-based perspective on trend momentum.

Usage

The Usage section describes how the script can be used to identify trend direction and potential entry/exit points directly on the price chart. Unlike the standard MACD which oscillates in a separate pane, this tool translates momentum oscillators into price levels.

• Trend Identification: When the current price is above the "MacdLevel" line (defaulted to 0), the market is generally considered to be in an uptrend. Conversely, price below this line suggests a downtrend.
• Signal Interpretation: The indicator plots a Reverse MACD line and a Signal line. Users can look for crossovers between these two lines to identify shifts in momentum.
• Color-Coded Signals: The indicator features a multi-tone coloring system to denote signal strength. Darker green/red colors indicate strong bullish or bearish momentum (based on the direction of the slope), while lighter shades indicate standard momentum signals.
• Price Projections: The blue line represents the price level required for the MACD to equal the user-defined "MacdLevel" (typically zero), acting as a dynamic support or resistance level based on momentum equilibrium.

Details

The concept behind this indicator was originally introduced by Johnny Dough in 2012. It functions by decompiling the standard MACD formula—which typically uses the difference between two Exponential Moving Averages (EMAs)—and solving for price.

The script calculates the "MACD Equivalent" price, which is the price value that would cause the MACD to reach a specific state based on the previous period's EMA values. By projecting these values onto the price chart, it creates a moving average that tracks price action closely while incorporating the mathematical logic of the MACD oscillator. This allows traders to see exactly where price needs to move to trigger a momentum crossover.

Settings

• Source: Determines the price data used for calculations (default is Close).
• Resolution: Allows the indicator to be calculated based on a different timeframe than the current chart.
• Allow Repainting?: Toggles whether the script uses real-time data for historical calculations.
• Allow Bar Color Change?: Enables or disables the modification of candle colors based on momentum signals.
• FastLength: The period for the shorter Exponential Moving Average (default is 12).
• SlowLength: The period for the longer Exponential Moving Average (default is 26).
• SignalLength: The period for the signal line calculation (default is 9).
• MacdLevel: The target MACD value used to calculate the price projection line (default is 0).

FAQ

How do I interpret the color changes on the chart? Green candles or lines indicate bullish momentum, with darker green representing strengthening momentum. Red candles or lines indicate bearish momentum, with darker red representing strengthening downward pressure.

What is the significance of the blue line? The blue line represents the specific price at which the MACD would equal the value set in the "MacdLevel" input. It serves as a visual threshold for trend transitions.

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