Fibonacci Sequence Moving Average

The Fibonacci Sequence Moving Average indicator provides a dual-component trading framework that utilizes Fibonacci-based moving averages and a normalized adaptive oscillator to identify trend direction, momentum shifts, and market divergences.

Usage

The Usage section describes how the script can be used to interpret market trends and momentum.

• Trend Filtering: Users can plot the Smoothed Fibonacci MA on the price chart to determine the primary trend direction. Trading in the direction of the MA slope can help align with higher-timeframe momentum.
• Mean Reversion: By setting the Oscillator Type to "Distance," traders can identify overextended price action relative to the average. Readings exceeding the ±50 extreme thresholds may signal potential exhaustion and a return to the mean.
• Momentum Analysis: The "Momentum" mode tracks the rate of change of the average itself. This is useful for identifying accelerating trends before they are fully visible in price action.
• Volatility-Adjusted Scaling: The "Relative" mode uses the Average True Range (ATR) to normalize the distance between price and the MA, making it effective for assets with fluctuating volatility.
• Divergence Trading: The indicator automatically identifies Regular and Hidden divergences. Regular divergences (R) suggest potential trend reversals, while Hidden divergences (H) often indicate trend continuation.

Details

The script constructs a composite moving average using five periods derived from the Fibonacci sequence (5, 8, 13, 21, and 34). These periods can be scaled globally using a multiplier.

• Weighting Logic: The five component averages are blended using one of four methods: Equal, Linear (weighted by index), Exponential (powers of 2), or Fibonacci (weighted by the period itself).
• Smoothing: After blending, a second smoothing layer is applied (e.g., EMA, HMA, TEMA) to reduce noise and provide a cleaner signal line.
• Normalization: To ensure the oscillator remains comparable across different asset classes and timeframes, the raw values are processed through a look-back normalizer, rescaling the output into a fixed -100 to +100 range.

Settings

Calculation Settings

• Source: Determines the price data used for calculations (default is Close).
• Fibonacci Multiplier: Scales the base Fibonacci periods (1 = 5, 8, 13, 21, 34; 2 = 10, 16, 26, 42, 68).
• Weighting Method: Choose between Equal, Linear, Exponential, or Fibonacci weighting for the component averages.
• Smoothing Period: The length of the final smoothing filter.
• Smoothing Type: Selects the mathematical model for smoothing (SMA, EMA, DEMA, TEMA, RMA, WMA, HMA).

Normalization

• Oscillator Type: Selects the logic for the raw oscillator (Distance, Momentum, or Relative).
• Normalization Lookback: The window used to determine the highest and lowest values for rescaling.

Divergences

• Show Detected Divergences: Toggles the visibility of Regular and Hidden divergence labels.
• Pivot Lookback Right/Left: Sets the number of bars required to confirm a pivot high or low.
• Signal Length: Adjusts the sensitivity of the divergence detection engine.

Display Settings

• Show Oscillator/MA/Components: Toggles various visual elements on the chart.
• Show Threshold Lines: Displays the ±20 and ±50 horizontal guides.
• Color Bars: Tints price candles based on oscillator polarity.

FAQ

How do I interpret the "R" and "H" labels? "R" stands for Regular Divergence, which indicates a potential reversal. "H" stands for Hidden Divergence, which typically signals that the current trend is likely to continue.

What is the benefit of using the Fibonacci Multiplier? The multiplier allows you to adapt the indicator to different timeframes without losing the mathematical relationship between the Fibonacci periods. A higher multiplier is generally better for long-term trend following.

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