This script visually identifies harmony and divergence within the market through an analysis of volume and price action over a specified lookback period. The script highlights these phenomena on the price chart, aiding traders in making informed decisions based on observed patterns.
What It Does:
The script operates on the principle of comparing volume and candle body sizes within two halves of a user-defined lookback period. It aims to detect periods of harmony, where price and volume trends move in synchrony, and periods of divergence, where they do not. Specifically, it:
* Calculates the highest volume and corresponding lowest price point in the first and second halves of the lookback period. * Determines the increase ratios for price and volume between these two points. * Visualizes these findings by drawing lines and labels on the chart, with the color indicating harmony (green) or divergence (red). * Optionally displays a table with detailed metrics and an "End H/D Period" label to mark the analysis boundary.
How It Does It
* It begins by iterating over each candle within the specified lookback period, dividing the period into two halves to compare early and later segments. * For each half, it identifies the candle with the highest volume and records its volume, the price at its lowest point, and the size of its candle body. * After identifying these key points, the script calculates ratios of price increase and volume increase from the first half to the second. * Using these ratios, it determines whether price and volume are moving in harmony or diverging. * Based on this analysis, it then dynamically draws lines connecting the two key points, with the line color indicating whether the period is classified as harmony or divergence. * Additionally, it can display a table with the calculated metrics for both points and their ratios, and optionally, a label to mark the end of the analyzed period. How Traders Might Use It:
It Can Be Used To
* Identifying potential reversal points: Periods of divergence may indicate upcoming changes in market direction, offering traders clues for entry or exit points. * Confirming trend strength: Harmony between price and volume trends can serve as a confirmation of the current market direction, suggesting a stronger trend that traders might follow. * Adjusting strategies: By observing the dynamics of price and volume, traders can adjust their trading strategies to better align with market conditions, potentially increasing their chances of successful trades. * Educational insights: The visual and tabular data provided by the script can help traders understand the relationship between volume and price action, enriching their market analysis skills.