Colored Volume Bars

The Colored Volume Bars indicator visualizes market momentum by color-coding volume bars based on the relationship between price and volume changes over a specific lookback period.

Usage

The Usage section describes how the script can be used to identify entry signals and trend strength based on the four-color classification system. Traders typically use this tool for swing trading and entry confirmation.

• Green Bars: Occur when both the closing price and volume are higher than they were 'n' periods ago. This indicates strong bullish momentum supported by volume.
• Blue Bars: Occur when the closing price is higher than 'n' periods ago, but volume is lower. This suggests a bullish trend with less conviction.
• Orange Bars: Occur when both the closing price and volume are lower than 'n' periods ago. This indicates a weakening bearish trend or lack of selling pressure.
• Red Bars: Occur when the closing price is lower than 'n' periods ago, but volume is higher. This suggests strong bearish momentum or selling pressure.

According to the original strategy by Edgar Kraut, traders may consider buying on green or blue volume bars while standing aside or exiting during red or orange bars.

Details

The script is based on a concept proposed by Edgar Kraut for short-term swing trading. It functions by comparing the current bar's closing price and volume to the price and volume of a bar at a specific distance in the past (the lookback period).

By evaluating whether price and volume are increasing or decreasing relative to that historical point, the indicator categorizes market activity into four distinct states. This implementation also includes an optional volume Simple Moving Average (SMA) to help traders identify when current volume is exceeding its recent average, providing further context for volatility and liquidity.

Settings

• Lookback: Sets the number of bars back used for the price and volume comparison. The default is 10.
• Show Volume MA: Toggles the visibility of a Moving Average line on the volume oscillator.
• MA Length: Determines the period used to calculate the volume Moving Average.

FAQ

What is the best lookback period to use? The default lookback is 10 periods, but this should be adjusted based on the specific asset and timeframe being traded to better capture relevant swing cycles.

Can I use this indicator for exit signals? While primarily used for entry confirmation (buying green/blue bars), the appearance of red or orange bars is often used as a signal to move to the sidelines or tighten stop losses.

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