OPEN-SOURCE SCRIPT
Multi-Horizon Volatility Waterfall [LuxAlgo]
The Multi-Horizon Volatility Waterfall [LuxAlgo] indicator is a quantitative tool that visualizes market volatility as a multi-layered spectrum across ten distinct time horizons. By normalizing Average True Range (ATR) using percentile ranking, the script identifies volatility clusters and regime shifts, providing a comprehensive "heat map" of market expansion and compression directly on the price chart and in a dedicated oscillator pane.
🔶 USAGE
The indicator provides a holistic view of volatility by stacking different lookback periods—from "Fast" (micro-bursts) to "Slow" (macro-shifts). This allows traders to observe how volatility "flows" through different timeframes, often signaling the inception of major trends before they are reflected in price action.
🔹 The Volatility Waterfall (Oscillator Pane)
The bottom pane features ten horizontal ribbons representing different volatility horizons.
🔹 Main Chart Visuals
The script projects its findings onto the main price chart through three primary features:
🔶 HOW TO USE
The Multi-Horizon Volatility Waterfall can be used to identify high-probability trading environments based on the "state" of market volatility.
🔶 DETAILS
The core methodology of the Waterfall is based on Percentile Rank Normalization. Standard volatility measures like ATR are difficult to compare across different assets or timeframes because their absolute values vary. By converting ATR into a percentile rank (0-100%) over a long-term lookback (e.g., 200 bars), the indicator creates a standardized "Heat" metric.
🔶 SETTINGS
🔹 Main Settings
🔹 Visualization
🔹 Dashboard
🔶 USAGE
The indicator provides a holistic view of volatility by stacking different lookback periods—from "Fast" (micro-bursts) to "Slow" (macro-shifts). This allows traders to observe how volatility "flows" through different timeframes, often signaling the inception of major trends before they are reflected in price action.
🔹 The Volatility Waterfall (Oscillator Pane)
The bottom pane features ten horizontal ribbons representing different volatility horizons.
- Hot (Red): Indicates that current volatility is in the highest percentiles relative to its recent history for that specific horizon.
- Cold (Blue): Indicates a compression phase where volatility is historically low.
- Aggregate Line: A central line representing the average "heat" across all ten horizons, serving as a primary gauge for the overall market regime.
🔹 Main Chart Visuals
The script projects its findings onto the main price chart through three primary features:
- Gradient Candles: When enabled, candles are colored based on the aggregate volatility heat, allowing for immediate identification of "hot" price action.
- Expansion Glow: A dynamic background highlight that "pulses" and fades based on the intensity of volatility expansion. The glow becomes more opaque as the market enters extreme expansion (Aggregate Heat > 70%).
- Pro Dashboard: A real-time data table providing the exact Aggregate Heat percentage, a Regime Classifier (Expansion, Neutral, or Compression), and the Fast/Slow Ratio.
🔶 HOW TO USE
The Multi-Horizon Volatility Waterfall can be used to identify high-probability trading environments based on the "state" of market volatility.
- Identifying Squeeze Breakouts: Look for periods where all ten ribbons in the waterfall are "Cold" (Blue). This indicates a deep volatility compression across all time horizons. A sudden shift to "Hot" (Red) in the top (Fast) ribbons often precedes a powerful breakout.
- Trend Confirmation: In a trending market, volatility should ideally remain in the "Neutral" to "Hot" range. If price continues to move but the Waterfall turns "Cold" across the board, it may suggest the trend is losing participation and entering a distribution or consolidation phase.
- Volatility Clusters: When the Aggregate Heat exceeds 70%, the "Expansion Glow" appears on the main chart. This signifies a high-intensity market environment. Traders can use this to adjust risk management, as higher volatility typically requires wider stop-losses but offers greater reward potential.
- Mean Reversion: Extreme "Hot" readings across all ribbons (a full red waterfall) can sometimes signal an exhausted move. If price reaches a key resistance level while the Waterfall is at maximum heat, it may indicate a climax followed by a reversal or a period of sideways "cooling."
🔶 DETAILS
The core methodology of the Waterfall is based on Percentile Rank Normalization. Standard volatility measures like ATR are difficult to compare across different assets or timeframes because their absolute values vary. By converting ATR into a percentile rank (0-100%) over a long-term lookback (e.g., 200 bars), the indicator creates a standardized "Heat" metric.
- Vertical Alignment: When all ten horizons turn red simultaneously, it indicates a "Volatility Cluster." This suggests that the expansion is occurring across all time horizons, often preceding a high-conviction breakout.
- Volatility Flow: Traders can watch for heat starting at the "Fast" (top) ribbons and moving down toward the "Slow" (bottom) ribbons. This "Waterfall" effect suggests that a short-term momentum burst is successfully transitioning into a sustained structural trend.
🔶 SETTINGS
🔹 Main Settings
- Base Horizon Step: The multiplier used to define the 10 horizons. If set to 10, the horizons will range from 10 to 100 periods.
- Percentile Lookback: The historical window used to determine the percentile rank of the current volatility.
- Smoothing: Applies an EMA to the volatility heat to reduce noise and provide a cleaner visual flow.
🔹 Visualization
- Cold/Hot Colors: Customizes the gradient colors for low and high volatility states.
- Color Candles by Volatility Heat: Toggles the gradient candle coloring on the main chart.
- Max Glow Intensity (%): Controls the maximum brightness of the background expansion glow to prevent it from overpowering the price action.
🔹 Dashboard
- Show Dashboard: Toggles the visibility of the real-time data table.
- Position/Size: Adjusts the location and scale of the dashboard on the chart interface.
Open-source script
In true TradingView spirit, the creator of this script has made it open-source, so that traders can review and verify its functionality. Kudos to the author! While you can use it for free, remember that republishing the code is subject to our House Rules.
All content & scripts provided by LuxAlgo are for educational purposes only and are not financial advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Open-source script
In true TradingView spirit, the creator of this script has made it open-source, so that traders can review and verify its functionality. Kudos to the author! While you can use it for free, remember that republishing the code is subject to our House Rules.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.