fake volume (normalized volatility)

The fake volume (normalized volatility) indicator provides a visual representation of market volatility designed to mimic the appearance of a standard volume histogram, allowing traders to analyze price activity on instruments where volume data is unavailable.

Usage

The Fake Volume indicator is primarily used to identify periods of high and low market activity through the lens of price volatility rather than actual trade counts.

• Comparison with Real Volume: On assets with available volume data, traders can compare the "Fake Volume" with actual volume. If the indicator shows high activity but real volume remains low, it may suggest that the current price movement lacks significant institutional backing and might not represent a structural peak or bottom.
• Volume-less Assets: This tool is particularly useful for indices and custom scores (e.g., SPX, KOSPI) that do not natively provide volume data. It serves as a proxy to gauge market intensity.
• Trend Strength: By observing the relationship between the columns and the moving average (MA), users can identify momentum shifts. A crossover above the MA suggests increasing volatility.

Details

The script calculates volatility by measuring the distance between a short-term Simple Moving Average (SMA) and the bar's High/Low extremes. To make this value readable and comparable across different timeframes or assets, it applies a Z-score normalization based on a long-term lookback period.

The resulting normalized value is offset to ensure the histogram remains positive, creating a visual output that resembles a traditional volume oscillator or histogram. This construction relies on the high correlation between price volatility and trading volume, where large price swings typically coincide with increased market participation.

Settings

• Short Term Length: Sets the period for the initial SMA used to calculate the price range/volatility.
• Long Term Length: Sets the lookback period for the Z-score normalization, affecting how relative the volatility peaks appear.
• MA Length: Determines the period for the smoothing moving average plotted over the histogram.

FAQ

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

Why does the indicator look like volume if it doesn't use volume data? The script uses normalized volatility. Because high volatility and high volume are statistically correlated, the resulting visual output naturally mimics the spikes seen in traditional volume indicators.

Can this indicator be used for trend reversal signals? While not a direct reversal signal, divergences between price action and normalized volatility can highlight exhaustion or lack of interest, which may precede a reversal.