Money Flow Divergence Zones

The Money Flow Divergence Zones indicator identifies key price levels where volume and momentum show significant disagreement, visualizing these areas as liquidity pockets for potential market reversals. It monitors the relationship between the Money Flow Index (MFI) and price action to detect regular divergences, projecting dynamic horizontal support and resistance zones onto the chart.

Usage

• Identifying Zones: The tool automatically draws green horizontal zones to represent bullish liquidity (potential support) and red zones for bearish liquidity (potential resistance).
• Interaction Signals: Small "▲" or "▼" triangles appear on bars when the price interacts with an active zone while momentum aligns, suggesting a potential entry or reversal point.
• Oscillator Confirmation: Use the smoothed MFI oscillator at the bottom to gauge volume strength; a green oscillator indicates rising money flow, while red indicates falling money flow.
• Mitigation Logic: Adjust the "Sweep Type" to determine when a zone is removed. A "wick" setting is more conservative, removing zones upon any touch, whereas a "body" setting requires a candle close through the zone.

Details

The script utilizes a smoothed Hull Moving Average (HMA) applied to the Money Flow Index to filter out high-frequency noise while remaining responsive to trend changes. When a divergence is detected—such as price making a lower low while the MFI makes a higher low—the script calculates a zone based on the recent price extreme. The zone's depth is defined by the distance between the absolute price extreme (wick) and the candle body, providing a more nuanced view of liquidity than a single line.

Settings

Divergence

• MFI Length: Sets the lookback period for the Money Flow Index calculation.
• Pivot Lookback Left/Right: Determines the number of bars required to confirm a pivot point for divergence detection.
• Calculate Divergence: Enables or disables the detection of regular bullish and bearish divergences.

Management

• Max Zone Age: The maximum number of bars a zone remains active before being automatically removed to prevent chart clutter.
• Sweep Type: Choose between "wick" or "body" to define the price level required to mitigate (remove) a zone.
• Allow Rejection: When set to body sweep, this requires two consecutive closes beyond the zone to confirm mitigation.

Appearance

• Bullish/Bearish Colour: Customizes the colors used for zones, the oscillator, and signal characters.

FAQ

How do I interpret the "▲" and "▼" symbols?

These symbols appear when the price is currently touching an active liquidity zone. A "▲" near a bullish zone indicates a potential bounce from support, while a "▼" near a bearish zone suggests potential resistance.

What is the difference between a Wick and Body sweep?

A Wick sweep removes the zone as soon as the price touches it. A Body sweep keeps the zone active until a candle actually closes beyond the zone's boundary, which can be useful for avoiding "fakeouts."

How can I access this tool?

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