MACD-V Volatility Normalisation

The MACD-V Volatility Normalisation indicator provides a standardized version of the classic Moving Average Convergence Divergence by normalizing price momentum through Average True Range (ATR). This allows traders to identify overextended market conditions and momentum shifts across different assets with consistent threshold levels.

Usage

The tool can be used to identify market phases based on specific numerical thresholds derived from the MACD-V calculation. Traders typically look for the following zones:

• Overextended (Risk): Readings above 150 or below -150 suggest extreme momentum where the risk of a reversal or exhaustion is higher.
• Trending (Rallying/Reversing): Values between 50 and 150 (bullish) or -150 and -50 (bearish) indicate strong directional momentum.
• Ranging (Sideways): Values between -50 and 50 suggest a lack of strong momentum, often coinciding with consolidation or range-bound price action.

Additionally, the indicator features a standard signal line and histogram to identify traditional crossovers and momentum acceleration/deceleration.

Details

This script implements the MACD-V method developed by Alex Spiroglou (CMT). Unlike the standard MACD which is calculated in absolute price units, the MACD-V divides the difference between the fast and slow Exponential Moving Averages (EMA) by the ATR.

The formula used is: [(Fast EMA - Slow EMA) / ATR] * 100.

By incorporating volatility into the denominator, the indicator becomes "unitless," allowing for a more objective comparison of momentum intensity between high-volatility and low-volatility periods, as well as across different instruments.

Settings

• MACD Fast Length: Determines the period for the fast Exponential Moving Average.
• MACD Slow Length: Determines the period for the slow Exponential Moving Average.
• Source: Specifies the price data used for the calculations (e.g., Close, Open, HL2).
• Signal Line Smoothing Length: The EMA period used to smooth the MACD-V line to create the Signal line.
• ATR Length: The period used for the Average True Range calculation. It is recommended to keep this aligned with the Slow Length for optimal normalization.
• Color Settings: Options to customize the visual appearance of the MACD line, Signal line, and Histogram growth/fall colors.

FAQ

How do I use the MACD-V thresholds?

Thresholds like 50, 150, -50, and -150 act as standardized levels to gauge whether a trend is healthy, overextended, or non-existent, regardless of the asset's price.

How does this differ from regular MACD?

Standard MACD values change based on the price of the asset (e.g., a $1000 stock vs. a $10 stock). MACD-V normalizes these values so they are comparable across all charts.

How can I access MACD-V Volatility Normalisation?

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