1. Inputs and Parameters: Fast and Slow Lengths: These define the moving averages used for calculating the MACD. Source: The volume data is used as the primary source. Signal Smoothing: The signal line is smoothed with the specified length. Oscillator and Signal MA Types: The user can select between SMA (Simple Moving Average) and EMA (Exponential Moving Average). 2. MACD Calculation: Fast and Slow MA: The script computes fast and slow moving averages of the volume data using the selected type (SMA or EMA). MACD: The difference between the fast and slow moving averages is calculated, and the RSI of this difference is further modified with a change function. Signal Line: A smoothed version of the MACD using either SMA or EMA. Top Line: The midpoint average between the MACD and the Signal Line. 3. Signal Generation: Long Signals (Green Candles Only): The script identifies potential buy signals when: The MACD, Signal Line, or Top Line crosses above specific thresholds (2, 3, 4, or 5). The candle is green (close price > open price). Short Signals (Red Candles Only): It identifies potential sell signals when: The MACD, Signal Line, or Top Line crosses below specific thresholds (-2, -3, -4, or -5). The candle is red (close price < open price). Each signal is categorized by its strength (M2, M3, M4, M5), depending on the threshold level.
4. Visualization: Long Signals: Represented as upward triangles of different sizes and colors based on their strength. Short Signals: Represented as downward triangles of different sizes and colors based on their strength. 5. Pullback Levels: The script calculates pullback levels based on the low (for long signals) and high (for short signals) of the candles where the signals occur: Long Pullback Level: Updated to the low of the candle when a long signal is detected. Short Pullback Level: Updated to the high of the candle when a short signal is detected. These pullback levels are plotted as step lines: Green Line: Represents the Long Pullback Level. Red Line: Represents the Short Pullback Level. 6. Average Pullback Level (Topk): The average of the Long Pullback Level and the Short Pullback Level is calculated and plotted: Pink Line: Represents the midpoint of the pullback levels, providing an additional reference for market movement. Overall Purpose: This script is designed to identify potential entry and exit points in the market based on volume-based MACD signals, categorized by strength, and complemented with pullback levels for better decision-making and visualization.