Smart Money Volume

The Smart Money Volume indicator identifies statistically abnormal volume activity and quantifies real-time buying and selling pressure using quantitative finance methodologies. This tool helps traders distinguish between standard market noise and significant institutional activity by highlighting volume outliers and calculating the directional conviction of market participants.

Usage

The Smart Money Volume tool can be used as a confluence filter for various trading strategies. Users can identify high-conviction market environments by observing the relationship between price action and the provided volume metrics.

• Confluence Tool: Use the outlier detection to confirm the validity of breakouts, reversals, or trend continuations. When an amber bar appears alongside a price breakout, it suggests high institutional participation.
• Regime Filtering: The Pressure HUD acts as a trend filter. Traders may seek long setups only when the HUD indicates "BUY MODERATE" or "STRONG," and short setups when it indicates "SELL MODERATE" or "STRONG."
• Divergence Analysis: Look for instances where price makes a new high while the Pressure HUD flips to "SELL" or shows weakening percentages, which can signal trend exhaustion and potential reversals.

Details

The script utilizes two primary quantitative methods to process volume data:

1. Outlier Detection (Tukey’s IQR): Unlike standard deviation methods which assume a normal distribution, Tukey’s Interquartile Range (IQR) is robust to skewed volume data. It calculates a threshold based on the 25th (Q1) and 75th (Q3) percentiles. The formula used is: threshold = Q3 + k × (Q3 − Q1). By default, a multiplier (k) of 2.0 is used to identify "extreme" outliers.
2. Buy/Sell Classification (BVC): Based on the Bulk Volume Classification method by Easley, López de Prado, and O'Hara (2012), the script splits each bar's total volume into buy and sell fractions. This is calculated using the normalized log-return and a logistic function to approximate the standard normal CDF, providing a more nuanced view than simple price-action based volume splitting.
3. Aggregated Pressure: The script sums the weighted buy and sell volumes over a user-defined lookback window (default 20 bars) to determine the dominant side and the magnitude of conviction (Weak < 55%, Moderate ≥ 55%, Strong ≥ 65%).

Settings

Outlier

• IQR Lookback: The number of bars used to calculate the percentiles for outlier detection.
• IQR Multiplier: Determines the sensitivity of outlier detection. A value of 1.5 represents a standard outlier, while 2.0 represents extreme volume activity.

Pressure

• BVC Sigma Window: The lookback period used to calculate the volatility (standard deviation) of log-returns for the volume classification.
• Pressure Lookback: The number of bars aggregated to compute the current buy/sell pressure displayed in the HUD.

Display

• Show Pressure HUD: Toggles the visibility of the real-time pressure information box in the top-right corner.
• Show Threshold Line: Toggles the visibility of the IQR threshold line and the average volume moving average on the volume panel.

FAQ

How do I interpret the amber bars? Amber bars represent volume activity that is statistically significant (outliers). These bars indicate "Smart Money" or institutional involvement that deviates from the recent average trading volume.

What does the "Strong" status in the HUD signify? A "Strong" status indicates that either buy or sell pressure exceeds 65% of the total volume over the lookback period, suggesting high directional conviction from market participants.

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.