Volume Divergence Indicator

The Volume Divergence Indicator tool helps traders identify potential price reversals and market shifts by analyzing volume data through non-repainting signals, including divergences, spikes, and trend shifts.

Usage

The Volume Divergence Indicator is designed to highlight discrepancies between price action and volume, as well as significant changes in market participation. It provides several distinct signals that can be used to gauge market exhaustion or momentum:

• Bullish Divergence: Occurs when prices reach lower lows but volume shows higher lows. This suggests selling pressure is diminishing, signaling a potential bullish reversal.
• Bearish Divergence: Occurs when prices reach higher highs but volume shows lower highs. This suggests buying interest is fading, signaling a potential bearish reversal.
• Volume Spike: Marked with a 💥 icon, this signal triggers when volume exceeds a standard deviation threshold above its moving average, indicating unusual activity.
• Volume Contraction: Marked with a ⤵ icon, this signal triggers when volume falls below a specific threshold, indicating low market interest or potential consolidation.
• Volume Trend: Displays "Strong Trend" or "Weak Trend" labels when volume consistently stays above or below its moving average for a sustained period, helping traders confirm the strength of a current price move.

Details

This script prioritizes non-repainting alerts by avoiding the use of pivot points, which are common in many divergence indicators but can cause lag or recalculations. Instead, it utilizes lookback periods and comparative logic to identify highs and lows in price and volume.

The tool includes a built-in volume pane visualization featuring a Volume Moving Average (MA) and standard deviation bands (Bollinger-style envelopes for volume) to help visualize volatility and extreme volume events. While it plots on the volume pane, signals are also forced to the price chart overlay for better visibility.

Settings

Divergences Signals

• Price and volume Lookback: Determines the number of bars used to calculate the recent high/low levels for price and volume.
• Bull Sensitivity: Adjusts the lookback multiplier for detecting bullish divergences.
• Bear Sensitivity: Adjusts the lookback multiplier for detecting bearish divergences.

Volume Spike & Contraction Signals

• Volume MA length: The period used for the Simple Moving Average (SMA) of volume.
• Sensitivity of Spikes: The multiplier for the upper standard deviation band; higher values require larger volume spikes to trigger a signal.
• Sensitivity of Contractions: The multiplier for the lower standard deviation band; higher values make it easier to trigger contraction signals.

Volume Trend

• Trend sensitivity: The number of consecutive bars volume must remain above or below the MA to trigger a "Strong" or "Weak" trend label.

FAQ

How can I use these signals for my trading strategy?

Volume divergences are often used as early warning signs of trend exhaustion. For example, a Bullish Divergence near a key support level can provide higher conviction for a long entry.

Is this indicator repainting?

No, the logic is constructed without pivot points or future-looking functions, ensuring that signals are confirmed and remain fixed once the bar closes.

How do I access the Volume Divergence Indicator?

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