We can identify the direction of the market with the help of a volume explosion indicator.
I think that in market structures where there is an excessive density of sellers or buyers, the market is going where the volume explosion, if there is no speculation.
Market makers collect products from the market without moving the price too much, or they want to sell the products they have without lowering the price too much.
This does not always work, the structure does not always work anyway, but it is an indicator that is useful to me when determining the directions of my trades.
Let's explain how the indicator works
In the example above the candle shown by number 1, there is volume explosion buyers more then sellers but price didn't changed a lot, this mean buyers wanted to price increase but they didn't successful, after that price get down to get for more liquidity, after market got some liquidity buyers push price with momentum to up.
The candle shown by number 2 and 3 market maker wanted to sell products but he didn't want to reduce price a lot because of then we had seen this structures, price reduce a little one or two time after that if buyers not powerful price got down very fast.
I use this indicator just look at the market direction not buy or sell signal, firstly i look when background is green or red, how market moved after these candles.
What can you change from the settings window ?
You can change length channel, this mean after one volume explosion how many candle should continue max value of channel. If you write so big number after one volume explosion not gonna see a lot explosion if volume explosion not higher then last value.
With Volume Exp Coef you can set how much should more then average of max and low value of channel. Actually for every market condition you should find for yourself , I use these settings for BTC pear and 1H timeframe, you should analyze market after that set these value.If you ask my opinion dont use high value for length and volume exp coef.
Volume explosions are also very common in areas of liquidation at the same time
In the picture above,the market maker takes liquidation after that price went very fast which direction market maker want to manage.
If you want you can set alarm when volume explosion up or down.
Pine script Codes:
(Dont forget copy @version=5 code)
//@version=5
indicator(title='Volume explosion Indıcator', format=format.volume, timeframe='', overlay=false)
nv = math.sign(ta.change(close)) * volume
nv_color_func = color.blue
nv_color = 1
if nv < 0
nv *= -1
nv_color := -1
nv_color
length = input.int(13,title = "Length Channel", minval=1)
coefficient_vol = input.float(1.25,title = "Volume Exp Coefficient", minval=1)
lower = ta.lowest(nv, length)
upper = ta.highest(nv, length)
basis = math.avg(upper, lower) * coefficient_vol
plot(nv, color=color.new(color.black, 0), title='MV', linewidth=2)
plot(basis, 'Basis', color=color.new(#FF6D00, 0))
u = plot(upper, 'Upper', color=color.new(#2962FF, 0))
l = plot(lower, 'Lower', color=color.new(#2962FF, 0))
//fill(u, l, color=color.rgb(33, 150, 243, 95), title="Background")
ema_line = ta.ema(nv, length)
nv_filter(nv_color_func) =>
if nv > basis and nv > ema_line * 2
if nv_color > 0
color.lime
else
color.red
else
na
plot(ema_line, color= color.white)
//bgcolor(nv > basis * 110 / 100 ? nv_color > 0 ? color.green : color.red : na , transp=50)
bgcolor(nv_filter(nv_color_func))
alertcondition(nv_filter(nv_color_func) == color.lime , title='Strong volume Green Candle', message='Strong volume changed, price increased')
alertcondition(nv_filter(nv_color_func) == color.red, title='Strong volume Red Candle', message='Strong volume changed, price fallen')
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