BySq - Market Psychology

The script I provided is a Market Psychology Index indicator for TradingView, which focuses on three key psychological market phases:

FOMO (Fear of Missing Out)

Panic Selling

Reversal

This indicator uses volume, price changes, and specific time periods to gauge market sentiment. Let me break it down:

1. Input Parameters:
FOMO Period: Defines how many bars (candles) the FOMO index will consider for its calculation.

Panic Period: Defines the period to evaluate Panic Selling.

Reversal Period: Defines the period to evaluate potential price reversals.

You can adjust these periods based on your analysis preferences. The default for each period is 14.

2. FOMO Index:
The FOMO Index aims to capture the "fear of missing out" behavior in the market.

It uses volume and price change:

Volume is compared to the Simple Moving Average (SMA) of volume over the specified period.

Price change is calculated as the percentage change in price compared to the previous bar.

If both volume and price change indicate strong upward movement, the FOMO index spikes.

3. Panic Selling Index:
The Panic Selling Index captures when traders are selling out of fear, often in a rapid or irrational way.

Similar to the FOMO Index, it considers volume and price change:

It uses volume and compares it to the SMA of volume for the panic period.

Price change is negative, meaning it considers only price drops.

When there is high volume coupled with significant price drops, it signals panic selling.

4. Reversal Index:
The Reversal Index aims to detect potential trend reversals in the market.

This index also considers volume and price change:

It focuses on upward price movement and compares volume to its SMA.

If there’s strong upward price movement along with increasing volume, it signals the possibility of a price reversal.

5. Graphical Output:
Histograms are drawn on the chart for each of the three indices:

FOMO is shown in green (indicating the presence of FOMO) and red (when the index is low).

Panic Selling is shown in orange.

Reversal is shown in purple.

The Zero Line (horizontal dotted line) helps identify when any of the indices is positive or negative.

6. Labels:
Labels for each index are shown on the chart at the relevant bar when the index spikes.

FOMO is labeled "FOMO" in green when it spikes.

Panic Selling is labeled "Panic Selling" in orange when it spikes.

Reversal is labeled "Reversal" in purple when it spikes.

Additionally, period labels show above the chart, indicating the specific periods (FOMO, Panic, and Reversal periods) currently being applied. This provides clarity on what time frame each index is analyzing.

7. How to Use:
FOMO: High values may indicate that traders are buying out of fear of missing out on a rally, suggesting a potentially overheated market.

Panic Selling: High values could suggest irrational selling behavior or capitulation, potentially marking the bottom of a downtrend.

Reversal: High values signal the potential for a market reversal, where the price could change direction due to increased volume and upward movement.

8. Visual Appearance:
The indicator’s histograms change colors based on the level of market sentiment detected. The color-coded approach provides an easy-to-read visual representation of different psychological phases in the market.

The horizontal zero line allows easy differentiation between positive and negative values.

Summary:
This script combines the psychology of the market (FOMO, Panic Selling, and Reversal) into a set of indicators that help traders identify potential turning points or emotional states in the market. By focusing on volume and price change, the script attempts to give a clear picture of market sentiment and possible future movements.