Volume Based Buy and Sell Momentum by 2tm

The Volume Based Buy and Sell Momentum by 2tm indicator provides a specialized look at market trends by combining adjustments to the Positive Volume Index (PVI) and Negative Volume Index (NVI) to visualize cumulative momentum. It serves as an effective tool for identifying whether volume is driving price action in a bullish or bearish direction relative to a smoothed baseline.

Usage

The indicator consists of a momentum line (representing the sum of PVI and NVI calculations) and a Simple Moving Average (SMA) baseline.

• Bullish Momentum: When the colored momentum line is above the SMA baseline, the area is shaded green, suggesting that cumulative volume-weighted price changes are positive and expanding.
• Bearish Momentum: When the momentum line drops below the SMA baseline, the area is shaded red, indicating that volume-weighted price action is weakening or turning negative.
• Crossovers: Traders often look for crossovers between the combined PVI/NVI line and the SMA as potential entry or exit signals for trend-following strategies.

Details

The script functions by calculating the Rate of Change (ROC) of the closing price. It then categorizes this change based on volume fluctuations:

1. NVI Component: If the current volume is lower than the previous bar's volume, the ROC is added to a cumulative Negative Volume Index sum.
2. PVI Component: If the current volume is higher than the previous bar's volume, the ROC is added to a cumulative Positive Volume Index sum.
3. Total Momentum: The script sums these two components to create a total momentum line.
4. Signal Line: An SMA (referred to as an EMA in the script's visual title but calculated as an SMA of the components) is applied to the sum to provide a dynamic threshold for trend identification.

Settings

• Length: This input determines the period used for the Simple Moving Average (SMA) baseline. A higher value will result in a smoother, slower-reacting signal line, while a lower value will make the indicator more sensitive to recent volume shifts.

FAQ

How do I interpret the color changes on the chart?

The color changes indicate the relationship between the cumulative volume momentum and its average. Green indicates bullish momentum (line above SMA), while red indicates bearish momentum (line below SMA).

Can this indicator be used for all timeframes?

Yes, the Volume Based Buy and Sell Momentum tool can be applied to any timeframe. However, because it relies on volume data, it is most effective on markets with reliable volume reporting, such as stocks or centralized crypto exchanges.

How can I access the Volume Based Buy and Sell Momentum by 2tm indicator?

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