Market Pulse

What is the Market Pulse Indicator?

The Market Pulse Indicator tracks price momentum across four primary market stages:

• Acceleration: A strong, trending movement where prices rapidly increase.
• Accumulation: A quieter phase of gradual price gains, often following a downtrend.
• Deceleration: The trend shows signs of losing momentum, typically indicating a potential reversal.
• Distribution: A period of sideways movement, where traders consolidate gains and prepare for the next trend.

This indicator employs moving averages to detect and categorize each stage, making it a straightforward tool for visually recognizing shifts in market conditions.

Understanding the Four Market Stages

The Four Market Stages are: Aaccumulation, Distribution, Acceleration, Deceleration.

1. Acceleration
   During this phase, the market experiences significant bullish momentum. This stage often signals a breakout where price action indicates an upward trend. Traders in this stage may prefer aggressive strategies, such as buying out-of-the-money calls, anticipating continued upward momentum.
2. Accumulation
   The accumulation phase is characterized by a consolidation pattern. Traders accumulate assets at these levels, preparing for the next upward move. Strategies are typically conservative here, with traders entering long positions or initiating spreads, reflecting an expected upward bias.
3. Deceleration
   In the deceleration stage, prices begin to slow down. This indicates a bearish momentum, and traders may start to pivot toward protective strategies, such as selling off positions or purchasing puts.
4. Distribution
   The final stage is distribution, where price action stalls, often leading to a range-bound movement. During this phase, both bullish and bearish trades become challenging, with strategies like iron condors or spreads being more appropriate.

We build a market pulse indicator, that uses a Variable Moving Average along with Volume Weighted Moving Averages to try and identify which one of the four market stages we’re in.

Here’s how the final product looks:

Market Pulse for TradingView (Free):

As of March 2022, we have continued our expansion of our indicator set into the TradingView platform.

Our Market Pulse indicator is now available for the TradingView platform, and is 100% free, for you to start using in your trading.

You can add the indicator to your charts by:

1. Visit our TradingView profile page
2. Navigate to the “Scripts” tab
3. Find the Market Pulse indicator and click to open
4. Scroll down and click the blue “Add to favorite indicators” button

As of 3/22/22, we currently have all 5 Futures Volatility Box models, the Edge Signals indicator, and the Market Pulse available for the TradingView platform.

 

Market Pulse thinkScript Tutorial

Now, let’s dive into coding the Market Pulse Indicator using ThinkScript. Follow along to add this powerful tool to your ThinkOrSwim workspace.

Step 1: Setting Up the Script

1. Open the ThinkOrSwim platform, and go to the Studies tab.
2. Click on Create to open a new thinkScript editor.

Start by defining a few basic input variables and initializing moving averages that will calculate the market’s condition based on volume and price.

input ChartBubblesOn = no;
input price = close;
input length = 10;

Step 2: Building the Volume-Weighted Moving Averages

The Volume-Weighted Moving Average (VWMA) considers volume when calculating the moving average, which provides a weighted average price reflective of trading activity.

def vwma8 = Sum(volume * close, 8) / Sum(volume, 8);
def vwma21 = Sum(volume * close, 21) / Sum(volume, 21);
def vwma34 = Sum(volume * close, 34) / Sum(volume, 34);

These moving averages are essential for determining bullish and bearish market conditions. Here, we’re creating three VWMA lines for the 8, 21, and 34 periods.

 

Step 3: Identifying Bullish, Bearish, and Distribution Phases

Using the VWMA lines, we’ll now define the market phases based on the relative position of these moving averages.

def bullish = if vwma8 > vwma21 and vwma21 > vwma34 then 1 else 0;
def bearish = if vwma8 < vwma21 and vwma21 < vwma34 then 1 else 0; 
def distribution = if !bullish and !bearish then 1 else 0;

In this section, we assign the different market conditions for each phase, which allows the indicator to differentiate between trending and range-bound periods.

 

Step 4: Adding Labels for the Market Stage

To make it easy to see which phase we are currently in, let’s add labels with distinct colors for each market phase.

AddLabel(yes, if bullish and close >= VMA then "Stage: Acceleration" else if bearish and close <= VMA then "Stage: Deceleration" else if close >= VMA then "Stage: Accumulation" else "Stage: Distribution", if bullish and close >= VMA then Color.GREEN else if bearish and close <= VMA then Color.RED else if close >= VMA then Color.YELLOW else Color.ORANGE);

Step 5: Plotting the Variable Moving Average (VMA)

The VMA combines volume and price for a comprehensive moving average that reacts to market changes.

def VMA = compoundValue("visible data" = coeff * price + (if IsNaN(VMA[1]) then 0 else VMA[1]) * (1 - coeff), "historical data" = price);
VMA.SetDefaultColor(GetColor(0));

Step 6: Chart Bubbles for Entry Points

Adding chart bubbles provides visual cues on the chart when the market shifts phases. The bubbles can signal entry points for acceleration and deceleration phases, ideal for traders seeking confirmation of market changes.

def accumulationToAcceleration = if (bullish and close >= VMA) then 1 else 0;
AddChartBubble(ChartBubblesOn and accumulationToAcceleration and !accumulationToAcceleration[1], close, "Entering Acceleration", Color.GREEN);def distributionToDeceleration = if (bearish and close <= VMA) then 1 else 0;
AddChartBubble(ChartBubblesOn and distributionToDeceleration and !distributionToDeceleration[1], close, "Entering Deceleration", Color.RED);

Step 7: Customizing the Indicator’s Colors and Labels

Assign colors based on each market stage to make the chart more visually intuitive. The Market Pulse Indicator provides color-coded visualizations to help traders quickly assess which phase the market is currently in.

VMA.AssignValueColor(if bearish and close <= VMA then Color.RED else if bullish and close >= VMA then Color.GREEN else Color.GRAY);

Conclusion

The Market Pulse Indicator is a versatile tool for trend traders. It allows you to quickly create and adapt strategies to the current market stage, without fussing around with moving averages or variability.

If you followed along with the thinkScript coding tutorial, hopefully you learned a thing or two about the different types of moving averages used and thinkScript logic available to create powerful trend indicators for ThinkOrSwim (in just a few lines of code).

You can also customize the Market Pulse Indicator to visualize trends on your charts. Whether you’re looking for aggressive entries in acceleration phases or aiming to avoid choppiness during distribution, the Market Pulse Indicator can help guide your trades with precision.

Thank you for following along with this tutorial, and as always, good luck trading!