Nef33-Volume Footprint Approximation

Description of the "Volume Footprint Approximation" Indicator
Purpose
The "Volume Footprint Approximation" indicator is a tool designed to assist traders in analyzing market volume dynamics and anticipating potential trend changes in price. It is inspired by the concept of a volume footprint chart, which visualizes the distribution of trading volume across different price levels. However, since TradingView does not provide detailed intrabar data for all users, this indicator approximates the behavior of a footprint chart by using available volume and price data (open, close, volume) to classify volume as buy or sell, calculate volume delta, detect imbalances, and generate trend change signals.
The indicator is particularly useful for identifying areas of high buying or selling activity, imbalances between supply and demand, delta divergences, and potential reversal points in the market. It provides specific signals for bullish and bearish trend changes, making it suitable for traders looking to trade reversals or confirm trends.
How It Works
The indicator uses volume and price data from each candlestick to perform the following calculations:
Volume Classification:
Classifies the volume of each candlestick as "buy" or "sell" based on price movement:
If the closing price is higher than the opening price (close > open), the volume is classified as "buy."

If the closing price is lower than the opening price (close < open), the volume is classified as "sell."

If the closing price equals the opening price (close == open), it compares with the previous close to determine the direction:
If the current close is higher than the previous close, it is classified as "buy."

If the current close is lower than the previous close, it is classified as "sell."

If the current close equals the previous close, the classification from the previous bar is used.

Delta Calculation:
Calculates the volume delta as the difference between buy volume and sell volume (buyVolume - sellVolume).

A positive delta indicates more buy volume; a negative delta indicates more sell volume.

Imbalance Detection:
Identifies imbalances between buy and sell volume:
A buy imbalance occurs when buy volume exceeds sell volume by a defined percentage (default is 300%).

A sell imbalance occurs when sell volume exceeds buy volume by the same percentage.

Delta Divergence Detection:
Positive Delta Divergence: Occurs when the price is falling (for at least 2 bars) but the delta is increasing or becomes positive, indicating that buyers are entering despite the price decline.

Negative Delta Divergence: Occurs when the price is rising (for at least 2 bars) but the delta is decreasing or becomes negative, indicating that sellers are entering despite the price increase.

Trend Change Signals:
Bullish Signal (trendChangeBullish): Generated when the following conditions are met:
There is a positive delta divergence.

The delta has moved from a negative value (e.g., -500) to a positive value (e.g., +200) over the last 3 bars.

There is a buy imbalance.

The price is near a historical support level (approximated as the lowest low of the last 50 bars).

Bearish Signal (trendChangeBearish): Generated when the following conditions are met:
There is a negative delta divergence.

The delta has moved from a positive value (e.g., +500) to a negative value (e.g., -200) over the last 3 bars.

There is a sell imbalance.

The price is near a historical resistance level (approximated as the highest high of the last 50 bars).

Visual Elements
The indicator is displayed in a separate panel below the price chart (overlay=false) and includes the following elements:
Volume Histograms:
Buy Volume: Represented by a green histogram. Shows the volume classified as "buy."

Sell Volume: Represented by a red histogram. Shows the volume classified as "sell."

Note: The histograms overlap, and the last plotted histogram (red) takes visual precedence, meaning the sell volume may cover the buy volume if it is larger.

Delta Line:
Delta Volume: Represented by a blue line. Shows the difference between buy and sell volume.

A line above zero indicates more buy volume; a line below zero indicates more sell volume.

A dashed gray horizontal line marks the zero level for easier interpretation.

Imbalance Backgrounds:
Buy Imbalance: Light green background when buy volume exceeds sell volume by the defined percentage.

Sell Imbalance: Light red background when sell volume exceeds buy volume by the defined percentage.

Divergence Backgrounds:
Positive Delta Divergence: Lime green background when a positive delta divergence is detected.

Negative Delta Divergence: Fuchsia background when a negative delta divergence is detected.

Trend Change Signals:
Bullish Signal: Green label with the text "Bullish Trend Change" when the conditions for a bullish trend change are met.

Bearish Signal: Red label with the text "Bearish Trend Change" when the conditions for a bearish trend change are met.

Information Labels:
Below each bar, a label displays:
Total Vol: The total volume of the bar.

Delta: The delta volume value.

Alerts
The indicator generates the following alerts:
Positive Delta Divergence: "Positive Delta Divergence Detected! Price is falling, but delta is increasing."

Negative Delta Divergence: "Negative Delta Divergence Detected! Price is rising, but delta is decreasing."

Bullish Trend Change Signal: "Bullish Trend Change Signal! Positive Delta Divergence, Delta Rise, Buy Imbalance, and Near Support."

Bearish Trend Change Signal: "Bearish Trend Change Signal! Negative Delta Divergence, Delta Drop, Sell Imbalance, and Near Resistance."

These alerts can be configured in TradingView to receive real-time notifications.
Adjustable Parameters
The indicator allows customization of the following parameters:
Imbalance Threshold (%): The percentage required to detect an imbalance between buy and sell volume (default is 300%).

Lookback Period for Divergence: Number of bars to look back for detecting price and delta trends (default is 2 bars).

Support/Resistance Lookback Period: Number of bars to look back for identifying historical support and resistance levels (default is 50 bars).

Delta High Threshold (Bearish): Minimum delta value 2 bars ago for the bearish signal (default is +500).

Delta Low Threshold (Bearish): Maximum delta value in the current bar for the bearish signal (default is -200).

Delta Low Threshold (Bullish): Maximum delta value 2 bars ago for the bullish signal (default is -500).

Delta High Threshold (Bullish): Minimum delta value in the current bar for the bullish signal (default is +200).

Practical Use
The indicator is useful for the following purposes:
Identifying Trend Changes:
The trend change signals (trendChangeBullish and trendChangeBearish) indicate potential price reversals. For example, a bullish signal near a support level may be an opportunity to enter a long position.

Detecting Divergences:
Delta divergences (positive and negative) can anticipate trend changes by showing a disagreement between price movement and underlying buying/selling pressure.

Finding Key Levels:
Imbalances (green and red backgrounds) often coincide with support and resistance levels, helping to identify areas where the market might react.

Confirming Trends:
A consistently positive delta in an uptrend or a negative delta in a downtrend can confirm the strength of the trend.

Identifying Failed Auctions:
Although not detected automatically, you can manually identify failed auctions by observing a price move to new highs/lows with decreasing volume in the direction of the move.

Limitations
Intrabar Data: It does not use detailed intrabar data, making it less precise than a native footprint chart.

Approximations: Volume classification and support/resistance detection are approximations, which may lead to false signals.

Volume Dependency: It requires reliable volume data, so it may be less effective on assets with inaccurate volume data (e.g., some forex pairs).

False Signals: Divergences and imbalances do not always indicate a trend change, especially in strongly trending markets.

Recommendations
Combine with Other Indicators: Use tools like RSI, MACD, support/resistance levels, or candlestick patterns to confirm signals.

Trade on Higher Timeframes: Signals are more reliable on higher timeframes like 1-hour or 4-hour charts.

Perform Backtesting: Evaluate the indicator's accuracy on historical data to adjust parameters and improve effectiveness.

Adjust Parameters: Modify thresholds (e.g., imbalanceThreshold or supportResistanceLookback) based on the asset and timeframe you are trading.

Conclusion
The "Volume Footprint Approximation" indicator is a powerful tool for analyzing volume dynamics and anticipating price trend changes. By classifying volume, calculating delta, detecting imbalances and divergences, and generating trend change signals, it provides traders with valuable insights into market buying and selling pressure. While it has limitations due to the lack of intrabar data, it can be highly effective when used in combination with other technical analysis tools and on assets with reliable volume data.