Zenith MACD Evolution [JOAT]

Zenith MACD Evolution [JOAT] - Volatility-Normalized Momentum Oscillator

Introduction and Purpose

Zenith MACD Evolution is an open-source oscillator indicator that takes the classic MACD and normalizes it by ATR (Average True Range) to create consistent overbought/oversold levels across different market conditions. The core problem this indicator solves is that traditional MACD values are incomparable across different volatility regimes. A MACD reading of 50 might be extreme in a quiet market but normal in a volatile one.

This indicator addresses that by dividing MACD by ATR and scaling to a consistent range, allowing traders to use fixed overbought/oversold levels that work across all market conditions.

Why ATR Normalization Works

Traditional MACD problems:
- Values vary wildly based on price and volatility
- No consistent overbought/oversold levels
- Hard to compare across different instruments
- Extreme readings in one period may be normal in another

ATR-normalized MACD (Zenith) solves these:
- Values scaled to consistent range
- Fixed overbought/oversold levels work across all conditions
- Comparable across different instruments
- Extreme readings are truly extreme regardless of volatility

How the Normalization Works

// Classic MACD
[macdLine, signalLine, histLine] = ta.macd(close, fastLength, slowLength, signalLength)

// ATR for normalization
float atrValue = ta.atr(atrNormLength)

// Volatility-Normalized MACD
float zenithMACD = atrValue != 0 ? (histLine / atrValue) * 100 : 0
float zenithSignal = ta.ema(zenithMACD, signalLength)

The result is a MACD that typically ranges from -200 to +200, with consistent levels:
- Above +150 = Overbought
- Below -150 = Oversold
- Above +200 = Extreme overbought
- Below -200 = Extreme oversold

Signal Types

• Zero Cross Up/Down - Zenith crosses zero line (trend change)
  
• Overbought/Oversold Entry - Zenith enters extreme zones
  
• Overbought/Oversold Exit - Zenith leaves extreme zones (potential reversal)
  
• Momentum Shift - Histogram direction changes (early warning)
  
• Divergence - Price makes new high/low but Zenith does not
  

Histogram Coloring

The histogram uses four colors to show momentum state:
- Strong Bull (Teal) - Positive and rising
- Weak Bull (Light Teal) - Positive but falling
- Strong Bear (Red) - Negative and falling
- Weak Bear (Light Red) - Negative but rising

This helps identify momentum shifts before crossovers occur.

Dashboard Information

• Zenith - Current normalized MACD value with signal line
  
• Zone - Current zone (EXTREME OB/OVERBOUGHT/NORMAL/OVERSOLD/EXTREME OS)
  
• Momentum - Direction (RISING/FALLING/FLAT)
  
• Histogram - Current histogram value
  
• ATR Norm - Current ATR value used for normalization
  
• Classic - Traditional MACD value for reference
  

How to Use This Indicator

For Mean-Reversion:
1. Wait for Zenith to reach extreme zones (+200/-200)
2. Look for momentum shift (histogram color change)
3. Enter counter-trend when exiting extreme zone

For Trend Following:
1. Enter long on zero cross up
2. Enter short on zero cross down
3. Use histogram color to gauge momentum strength

For Divergence Trading:
1. Watch for DIV labels (price vs Zenith divergence)
2. Bullish divergence at support = potential long
3. Bearish divergence at resistance = potential short

Input Parameters

• Fast/Slow/Signal Length (12/26/9) - Standard MACD parameters
  
• ATR Normalization Period (26) - Period for ATR calculation
  
• Overbought/Oversold Zone (150/-150) - Zone thresholds
  
• Extreme Level (200) - Extreme threshold
  
• Show Classic MACD Lines (false) - Toggle traditional lines
  
• Show Divergence Detection (true) - Toggle divergence signals
  
• Divergence Lookback (14) - Bars to scan for divergence
  

Timeframe Recommendations

• All timeframes work due to normalization
  
• Higher timeframes provide smoother signals
  
• Normalization makes cross-timeframe comparison meaningful
  

Limitations

• ATR normalization adds slight lag
  
• Divergence detection is simplified
  
• Extreme zones can persist in strong trends
  
• Works best when combined with price action analysis
  

Open-Source and Disclaimer

This script is published as open-source under the Mozilla Public License 2.0 for educational purposes.

This indicator does not constitute financial advice. Momentum analysis does not guarantee profitable trades. Always use proper risk management.

- Made with passion by officialjackofalltrades