Wyckoff's second law of cause and effect implies that price movement (up or down) should be proportional to the effort (volume) supplied. Price is not subject to gravity; without volume it cannot move.
This one-line indicator acts a bit like a lie detector for price action.
It simply identifies bars with decreasing volume, the idea being that movement on a bar where volume has decreased is considered suspicious.
Falling volume accompanied by much price movement is more suspicious than it is on bars with less movement.
Pure luck would have it that the varying size of the candlestick bodies provides an easy way to visually grasp the degree of suspiciousness their movement should be considered with because it is directly proportional to the body's size. Large, empty bodies are more suspicious than small ones.
Taking things from the opposite perspective, this indicator reveals the more meaningful candles on your chart, the ones telling the truth, since their color is not changed if they are accompanied by rising volume.
This version includes the option of showing the body of candles for which volume is above its MA in a different color.
If I could only use only one indicator, TLD is the one I would use, which is ironic because of all the indicators I’ve published, it is the one with the least likes. The additional information TLD provides on candles has become an integral part of the way I read charts. Using TLD, I often begin chart analysis by looking at candles only, without any other indicator. I build a picture and only then do I look at other indicators.
Do not let the simplicity of the code behind TLD fool you into thinking it is irrelevant. While it will take some time to include the five different body colors TLD can show in your candle reading methodology, I am confident that chances are you will find it beneficial.
Here is how I setup the TLD colors on my black background charts with blue and white candles, which are pre-defined in the chart’s settings:
1. I make Color 0 the color of my chart background. This hollows out the bodies of all decreasing volume candles, up or down. This approach makes charts more quiet than the orange fill I used in the first version of TLD, while achieving the same intended purpose of minimizing the visual impact of decreasing volume candles.
2. I make Color 1 a brighter white than the body of my up candles, putting emphasis on up candles with increasing volume when is it also above the volume MA.
3. I make Color 2 a brighter blue than the body of my down candles, putting emphasis on down candles with increasing volume when it is also above the volume MA.
If you use this scheme, you now have 5 different colors for your candle bodies, divided into 3 types:
1. Hollow bodies for all decreasing (or equal) volume candles, whether up or down (1 color).
2. Full-bodied normal up or down candles (as per your chart’s settings) for increasing volume candles (2 colors).
3. Brighter version of the previous 2 colors for up or down candles where volume is increasing and also above the volume MA (2 colors).
- Hollow-bodied candles almost systematically appear at tops and bottoms.
- Sequences of hollow-bodied candles are good indicators of exhaustion or irrelevant price movements. I tend to consider hollow-bodied candles a bit like dojis, i.e. marking unclear or shifting buying/selling balance.
- Above average brighter-colored bodies often indicate key points like stopping volume and tops. When appearing in succession, they point to strong movements.
- I often wait for breaches of key levels for entries. In addition to the wick and body length of candles, I use the TLD-colored bodies to evaluate the strength of a breach.
- I look at the number of full-bodied candles in recent price movement to get a better idea of sentiment. This can also be helpful in subtle price movements during consolidations.
- Apart from a few key candle types or patterns like hammers, dojis, pins and tweezers, I mostly just use the progression and relationships between TLD-provided body colors and heights to read my charts.
Note: TLD uses an exponential moving average by default, which is different from the simple moving average used in the stock Volume indicator. I prefer an exponential moving average because it adapts more quickly to volume spikes. You have the option of changing for a simple moving average.
• Choice of 2 candle color schemes, including choice of chart background color, to help in color selection.
• A double bump marker with an alert, which triggers after 2 consecutive increasing volume bars with bars going in the same direction. You can choose to have the markers plot above/below bars or at the top/bottom of the chart.
• The possibility to plot an invisible signal line that can be used to feed entry signals (with entry stop information) to the PineCoders Backtesting & Trading Engine.
• Converted code to Pine v4.
Note: The default scale for the indicator is now "None". This allows the indicator to plot the Engine signal without disrupting your chart's scale. When plotting this signal, you will not be able to show markers above/below bars, as the indicator doesn't know where the bars are positioned when its scale is set to "None".
This chart shows TLD on a white background and the standard green/red candles. It is also showing the Double Bump markers above/below bars.
• The indicator still installs in No Scale mode on the chart. To get markers immediately above/below bars, you still need to set the indicator's scale to the same as the price scale AND choose to place markers aligned with bars in the indicator's Input/Settings.
• The color-changing instructions in the original instructions no longer apply. The detailed legends in the Inputs/Style tab will help you. For any combination of white/black chart background and green/red or white/blue candle colors:
1. Your chart settings determine the chart background and the colors of bars with increasing volume.
2. The indicator must be told the color of your chart's background and candle colors in the Input/Settings tab.
3. You must select the 2 colors you want to highlight up and down bars where volume is increasing but also above the MA.
Tools and ideas for all Pine coders: http://www.pinecoders.com
In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in a publication is governed by House Rules. You can favorite it to use it on a chart.