Settings * Moving Average Period: The moving average period used to generate the moving average line for the bar chart. Default=14 * Dot Size: The size of the dot that indicates when the moving average of the CVD is breached. Default=10 * Dot Transparency: The transparency of the dot that indicates when the moving average of the CVD is breached. Default=50 * EMA: The exponential moving average that the price must break through, in addition to the CVD moving * Accumulation Length: Period used to generate the Cumulative Volume Delta (CVD) for the bar chart. Default=14
Introduction Velocity = Change in Position over time Acceleration = Change in Velocity over time
For this indicator, Position is synonymous with the Cumulative Volume Delta (CVD) value. What the indicator attempts to do is to determine when the rate of acceleration of buying or selling volume is changing in either or buying or selling direction in a meaningful way.
Calculations The CVD, upon which these changes is calculated using candle bodies and wicks. For a red candle, buying volume is calculated by multiplying the volume by the spread percentage of the average of the top and bottom wicks, while Selling Volume is calculated multiplying the volume by the spread percentage of the average of the top and bottom wicks - in addition to the spread percentage of the candle body.
For a green candle, buying volume is calculated by multiplying the volume by the spread percentage of the average of the top and bottom wicks - plus the spread percentage of the candle body - while Selling Volume is calculated using only the spread percentage average of the top and bottom wicks.
How to Interpret The difference between the buying volume and selling volume is the source of what generates the red and green bars on the indicator. But, more specifically, this indicator uses an exponential moving average of these volumes (14 EMA by default) to determine that actual bar size. The change in this value indicates the velocity of volume and, ultimately, the red and green bars on the indicator.
- When the bar height is zero, that means that there is no velocity, which indicates either a balance between buyers and sellers, or very little volume. - When the bar height remains largely unchanged from period to period - and not zero - it means that the velocity of volume is constant in one direction. That direction is indicated by the color of the bar. Buyers are dominating when the bars are green, and sellers are dominating when the bars are red. - When the bar height increases, regardless of bar color, it means that volume is accelerating in a buying direction. - When the bar height decreases, regardless of bar color, it means that volume is accelerating in a selling direction.
The white line represents the moving average of the bar values, while the red and white - and green and white - dots show when the moving average has been breached by the Cumulative Volume Delta value AND the price has broken the 7 EMA (which is user editable). As with most moving averages, a breach can indicate a move in a bearish or bullish direction, and the sensitivity can be adjusted for differing market conditions
Other Usage Notes and Limitations
For better use of the signal, consider the following,
1. Volume moving below the moving average can indicate that the volume may be ready to exit an overbought condition, especially if the bars were making lower highs prior to the signal - regardless of bar color. 3. Volume moving above the moving average can indicate that the volume may be ready to exit an oversold condition, especially if the bars were making higher lows prior to the signal - regardless of bar color.
Additionally, a green dot that occurs with a positive (green) Cumulative Volume Delta can indicate a buying condition, while a red dot that occurs with a negative (red) Cumulative Volume Delta can indicate a selling condition. What this means is that buying or selling momentum briefly went against the direction of buying or selling Cumulative Volume Delta , but was not strong enough to change the buying or selling direction. In cases like this, once the volume begins to accelerate again in the direction of the buying or selling volume - indicated by a red or green dot - then the price is more likely to favor the direction of the Cumulative Volume Delta and its corresponding acceleration.
Although a red or green signal can indicate a change in direction, this script cannot predict the magnitude or duration of the change. It is best used with accompanying indicators that can be used to confirm a direction change, such as a moving average, or a supply or demand range.
Hi anyway you can put arrows on chart and alert with change in impulse? thxs
mwrightinc
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@SunilPatel, that would have to be a different indicator since it would overlay on top of the chart itself. Send me a direct message and maybe we can get something specific for you.
HalfShellTrader
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Wow! Super useful indicator, dude. Surprised it not much more popular. But thank you so much for this one.
guinew
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Great tool, has been very useful, appreciate it!
krishina
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I loved the indicator, just a doubt in the interpretation: when the volume is above the moving average, volume at the top and moving average below, wouldn't you be ready to leave an overbought instead of an oversold as written in the indicator's explanation?
mwrightinc
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@krishina, thanks for the comment. As in the title, this indicator finds when impulses occur. When, for example, the buying volume projects above the moving average, there is some event somewhere that triggered that movement. This is even more pronounced (and reliable) when the volume is already trending up before that happens. Eventually, the price will fall, but typically a significant drop won't happen before it is preceded by the volume dropping back below the moving average. In other words, if people stop buying, the price will drop. If the price drops before people stop buying then there is probably some key resistance level or supply zone that has been hit. For that reason, this indicator is best used in conjunction with strategies that consider supply and demand or support and resistance. I hope this helps.