Price and Volume Stochastic Divergence

The Price and Volume Stochastic Divergence indicator identifies high-interest entry and exit points for equities by analyzing the relationship between price momentum and cumulative volume delta. It utilizes stochastic calculations applied to volume flow and exponential moving averages to highlight periods where volume leads or diverges from price action.

Usage

The indicator consists of three primary components plotted on a stochastic oscillator scale (0-100):

• CVD Line (Coral): Represents the Stochastic Cumulative Volume Delta. A value above 50 suggests dominant buying pressure, while a value below 50 suggests dominant selling pressure.
• EMA Line (Blue): Represents the stochastic value of the short-term price trend.
• EMA Delta (Orange): Represents the difference between the short and long-term EMAs, helping to define the broader trend context.

Signal Interpretation:

• Major Bullish Signal: Occurs when the CVD line begins rising from 0 while the short-term EMA stochastic is at 100.
• Major Bearish Signal: Occurs when the CVD line begins falling from 100 while the short-term EMA stochastic is at 0.
• Resumption Signals: Small signals are generated when the CVD reverses direction following a major signal, indicating that the volume impulse is moving back in alignment with the price trend.

Details

This tool calculates Cumulative Volume Delta (CVD) by analyzing candle body and wick proportions to estimate buying and selling pressure.

• Volume Logic: For green candles, buying volume includes the candle body plus the average of the wicks. For red candles, selling volume includes the body plus the average of the wicks.
• Stochastic Transformation: The resulting CVD and price EMAs are transformed into a stochastic scale: (current - lowest) / (highest - lowest). This normalization allows for easier identification of divergences and extreme exhaustion points across different asset classes.

Settings

Cumulative Volume Delta Settings

• Cumulative Volume Accumulation Length: The period used to calculate the EMA of the cumulative volume delta.

EMA Settings

• Short Period EMA: The faster exponential moving average used to represent current price action.
• Long Period EMA: The slower exponential moving average used to calculate the trend-defining EMA Delta.

Stochastic Settings

• Stochastic K Value: The smoothing factor applied to the stochastic curves.
• Stochastic Length: The lookback period used for the stochastic percent rank calculation.

Layout & Visuals

• Dot Size: Adjusts the diameter of the signal markers.
• Dot Transparency: Sets the visibility level of the signal rings.
• Band Distance: Adjusts the offset of the upper and lower threshold bands from 0 and 100.

FAQ

How do I interpret the three lines?

The coral line tracks volume momentum, the blue line tracks price momentum, and the orange line tracks the trend gap between short and long-term averages. Signals are strongest when these lines align or show clear divergence at extreme levels.

Can I use this for intraday trading?

Yes, while originally designed with equities in mind, the volume-based stochastic logic can be applied to various timeframes, though it is recommended to pair it with VWAP or ATR bands for better trend confirmation.

How do I get access to Price and Volume Stochastic Divergence?

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