OPEN-SOURCE SCRIPT
Projection Dynamiques (CPD-V) - By Sese04 (XAUUSD)
Key Concept of the Indicator: DPC-V FOR GOLD
Absolutely! Creating a relevant projection indicator for Gold (XAU/USD) requires combining several concepts: trend, volatility, and market structure (price action). A simple indicator that extends a straight line is not sufficient for an asset as complex as gold.
I will propose an advanced indicator concept, which we'll call the "Dynamic Projection Channels based on Volatility" (DPC-V). This indicator does not predict an exact price at an exact date, but rather projects probability zones where the price is likely to react, based on its recent historical behavior.
Key Concept of the Indicator: DPC-V
The idea is to create channels around a central trend line. Unlike Bollinger Bands which use standard deviation, we will use the Average True Range (ATR), which is a much more direct and relevant measure of the market's true volatility.
Indicator Components:
The Centerline (The "Center of Gravity"): An Exponential Moving Average (EMA). It represents the underlying mid-term trend. An EMA-50 is an excellent starting point for Gold on Daily or 4H charts.
The Projection Engine (The Volatility): The Average True Range (ATR) over 14 periods. The ATR measures the average "distance" that the price of Gold travels on each candle. This is the core of our projection.
The Projection Channels (The "Target Zones"): We will project several levels above and below the centerline, using multiples of the ATR.
Normal Reaction Zone (± 1x ATR): The zone where the price moves most of the time in a healthy trend.
Extension Zone (± 2x ATR): The price reaches this zone during strong moves. It is considered "stretched" or "over-extended," and a pause or reversal becomes probable.
Excess / Climax Zone (± 3x ATR): A rarely reached zone, often signaling a major market top or bottom, or trend exhaustion.
Why is this indicator relevant for Gold?
Adaptive: Gold experiences phases of low volatility (ranging) and phases of high volatility (explosive trends). The ATR adjusts automatically: the channels widen during high volatility periods and tighten during calm periods, making the projections always relevant to the current context.
Based on "Price Action": The ATR is calculated directly from the highs, lows, and closes. It therefore directly reflects the price action.
Provides Concrete Targets: It doesn't give a vague direction, but objective price zones that can serve as targets for taking profits or as potential entry points.
------------------------------USER GUIDE------------------------------------------
How to Use the Indicator with Historical Data (Strategy)
Open a chart of Gold (XAU/USD), for example, on the Daily timeframe. Apply the indicator. You will immediately observe its historical behavior.
1. Identifying the Underlying Trend:
If the price is above the yellow centerline (EMA 50) and the line is sloping up, the underlying trend is bullish.
If the price is below the yellow centerline and the line is sloping down, the underlying trend is bearish.
2. Buy Scenario (Bullish Trend):
Potential Entry Point: Look for price pullbacks towards the centerline (EMA 50) or, even better, towards the lower band of the reaction zone (Inf 1). A bounce off this zone, confirmed by a bullish candle (e.g., hammer, bullish engulfing), is a strong buy signal.
Take Profit (Target):
Target 1: The upper band of the reaction zone (Sup 1).
Target 2 (in case of strong momentum): The extension band (Sup 2). Reaching this zone is a good signal to take some or all of your profits.
Stop Loss: Place your stop loss below the last significant low, or more conservatively, below the lower extension band (Inf 2).
Historical Example (Buy):
Look at the gold rally from late 2022 to early 2023. You will see that the price regularly bounced on or near the EMA 50 centerline and the Inf 1 band before resuming its upward move to touch the Sup 1 and Sup 2 bands.
3. Sell Scenario (Bearish Trend):
Potential Entry Point: Look for price rallies towards the centerline (EMA 50) or the upper band of the reaction zone (Sup 1). A rejection from this zone, confirmed by a bearish candle, is a sell signal.
Take Profit (Target):
Target 1: The lower band of the reaction zone (Inf 1).
Target 2: The lower extension band (Inf 2).
Stop Loss: Place it above the last significant high or the upper extension band (Sup 2).
4. Using the Excess Zones (Level 3):
When the price touches the Sup 3 or Inf 3 band, you should NOT enter in the direction of the trend. This is a signal of exhaustion.
It is an aggressive profit-taking zone for existing positions.
For experienced counter-trend traders, it may signal a reversal opportunity, but this must be confirmed by other signals (RSI divergence, reversal patterns, etc.).
Conclusion and Warning
This DPC-V indicator is a powerful tool because it is dynamic and visual. It structures the apparent chaos of the market into clear probability zones. By analyzing it on gold's historical data, you can identify its relevance and build confidence in the signals it generates.
Important Reminder: No indicator is a crystal ball. The DPC-V should be used as a decision-support tool, in conjunction with fundamental analysis (economic announcements, interest rates, geopolitics) and rigorous risk management (Stop Loss).
Absolutely! Creating a relevant projection indicator for Gold (XAU/USD) requires combining several concepts: trend, volatility, and market structure (price action). A simple indicator that extends a straight line is not sufficient for an asset as complex as gold.
I will propose an advanced indicator concept, which we'll call the "Dynamic Projection Channels based on Volatility" (DPC-V). This indicator does not predict an exact price at an exact date, but rather projects probability zones where the price is likely to react, based on its recent historical behavior.
Key Concept of the Indicator: DPC-V
The idea is to create channels around a central trend line. Unlike Bollinger Bands which use standard deviation, we will use the Average True Range (ATR), which is a much more direct and relevant measure of the market's true volatility.
Indicator Components:
The Centerline (The "Center of Gravity"): An Exponential Moving Average (EMA). It represents the underlying mid-term trend. An EMA-50 is an excellent starting point for Gold on Daily or 4H charts.
The Projection Engine (The Volatility): The Average True Range (ATR) over 14 periods. The ATR measures the average "distance" that the price of Gold travels on each candle. This is the core of our projection.
The Projection Channels (The "Target Zones"): We will project several levels above and below the centerline, using multiples of the ATR.
Normal Reaction Zone (± 1x ATR): The zone where the price moves most of the time in a healthy trend.
Extension Zone (± 2x ATR): The price reaches this zone during strong moves. It is considered "stretched" or "over-extended," and a pause or reversal becomes probable.
Excess / Climax Zone (± 3x ATR): A rarely reached zone, often signaling a major market top or bottom, or trend exhaustion.
Why is this indicator relevant for Gold?
Adaptive: Gold experiences phases of low volatility (ranging) and phases of high volatility (explosive trends). The ATR adjusts automatically: the channels widen during high volatility periods and tighten during calm periods, making the projections always relevant to the current context.
Based on "Price Action": The ATR is calculated directly from the highs, lows, and closes. It therefore directly reflects the price action.
Provides Concrete Targets: It doesn't give a vague direction, but objective price zones that can serve as targets for taking profits or as potential entry points.
------------------------------USER GUIDE------------------------------------------
How to Use the Indicator with Historical Data (Strategy)
Open a chart of Gold (XAU/USD), for example, on the Daily timeframe. Apply the indicator. You will immediately observe its historical behavior.
1. Identifying the Underlying Trend:
If the price is above the yellow centerline (EMA 50) and the line is sloping up, the underlying trend is bullish.
If the price is below the yellow centerline and the line is sloping down, the underlying trend is bearish.
2. Buy Scenario (Bullish Trend):
Potential Entry Point: Look for price pullbacks towards the centerline (EMA 50) or, even better, towards the lower band of the reaction zone (Inf 1). A bounce off this zone, confirmed by a bullish candle (e.g., hammer, bullish engulfing), is a strong buy signal.
Take Profit (Target):
Target 1: The upper band of the reaction zone (Sup 1).
Target 2 (in case of strong momentum): The extension band (Sup 2). Reaching this zone is a good signal to take some or all of your profits.
Stop Loss: Place your stop loss below the last significant low, or more conservatively, below the lower extension band (Inf 2).
Historical Example (Buy):
Look at the gold rally from late 2022 to early 2023. You will see that the price regularly bounced on or near the EMA 50 centerline and the Inf 1 band before resuming its upward move to touch the Sup 1 and Sup 2 bands.
3. Sell Scenario (Bearish Trend):
Potential Entry Point: Look for price rallies towards the centerline (EMA 50) or the upper band of the reaction zone (Sup 1). A rejection from this zone, confirmed by a bearish candle, is a sell signal.
Take Profit (Target):
Target 1: The lower band of the reaction zone (Inf 1).
Target 2: The lower extension band (Inf 2).
Stop Loss: Place it above the last significant high or the upper extension band (Sup 2).
4. Using the Excess Zones (Level 3):
When the price touches the Sup 3 or Inf 3 band, you should NOT enter in the direction of the trend. This is a signal of exhaustion.
It is an aggressive profit-taking zone for existing positions.
For experienced counter-trend traders, it may signal a reversal opportunity, but this must be confirmed by other signals (RSI divergence, reversal patterns, etc.).
Conclusion and Warning
This DPC-V indicator is a powerful tool because it is dynamic and visual. It structures the apparent chaos of the market into clear probability zones. By analyzing it on gold's historical data, you can identify its relevance and build confidence in the signals it generates.
Important Reminder: No indicator is a crystal ball. The DPC-V should be used as a decision-support tool, in conjunction with fundamental analysis (economic announcements, interest rates, geopolitics) and rigorous risk management (Stop Loss).
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.
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.