Vol Compression PRO

anteayer

## Volatility Compression PRO (Fully Fixed)

This indicator is an **options-theory-inspired “volatility compression → expansion” detector**, enhanced for **crypto trading on 4H/1D**. It is designed as a **two-stage system**:

1. **Environment / Setup (1D)**: Detects a volatility-compressed regime where a breakout is more likely.
2. **Trigger (current chart TF, recommended 4H)**: Confirms the breakout using price structure + volatility expansion + (optional) volume.

A major feature of this script is that it **avoids TradingView’s 5000-bar historical limitation** by recommending a **Daily HV (1D) computation mode**, which is stable and not constrained by intraday bar counts.

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## Core Concept

### Stage A — “Setup” (Daily Environment Filter)

On the **daily timeframe**, the script estimates realized volatility (HV) and produces an **Environment Score (0–100)** that reflects how “compressed” volatility is versus its own history.

A **Setup window** becomes active when:

* `Environment Score >= Setup Threshold`
* Optional “persistence” can keep Setup active for N days after triggering (to avoid edge flicker).

It also calculates a **daily directional bias** (Bull/Bear) using one of two methods:

* **Price vs Daily EMA** (default): bias is bullish if daily close > daily EMA, bearish if below.
* **MACD > 0**: bias is bullish if daily MACD line > 0, bearish if < 0.

This stage answers:
**“Are we in a volatility-compressed regime worth watching, and what is the higher-timeframe bias?”**

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## HV / Compression Scoring Model

The script computes:

* **Short-term HV**: standard deviation of log returns over a short window
* **Long-term HV**: standard deviation of log returns over a long window
* **HV Percentile**: percentile rank of short HV over a historical lookback
* **Compression Ratio (S/L)**: short HV divided by long HV (`<1` implies compression, `>1` implies expansion)
* **Log-Z Deviation**: Z-score of log(HV) vs its historical distribution (more stable than raw HV Z-score)

Then it builds a **0–100 score** using weighted components:

* Low HV percentile (lower = more compressed)
* Compression ratio below 1 (more compression)
* Negative log-Z deviation (HV below typical)

This produces a single number: **“Explosion Potential (Environment Score)”**.

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## Stage B — Trigger Logic (Current Chart Timeframe, recommended 4H)

A **Long Trigger** fires only when **all** of the following are true:

1. **Setup is active** (from daily environment score)
2. **Daily bias is bullish**
3. **Donchian breakout UP**

* Close breaks above the **previous bar’s** highest high of the last N bars
* Uses `[1]` to avoid same-bar repaint-style lookback issues
4. **Volatility expansion confirmation**, via either:

* **Bollinger Band Width rising** (BBW turns up and exceeds its mean), and/or
* **ATR% rising** (ATR as % of price increases)
5. **Optional volume confirmation**:

* Volume > SMA(volume) × multiplier (if enabled)

A **Short Trigger** mirrors the long logic (requires bearish bias + downside Donchian break), and can be toggled on/off.

This stage answers:
**“Did price actually escape the compression box, and is volatility expanding with it?”**

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## Two HV Calculation Modes (5000-bar limitation fix)

### 1) **Daily HV (Recommended)**

* Computes HV + Score + Setup on the **daily timeframe using `request.security(...,"D",...)`**
* This avoids intraday needing thousands of bars to represent many days
* Much more stable and reliable for regime detection

### 2) **Adaptive to Chart TF**

* Computes HV on the **current chart timeframe**
* Includes a strict conversion of “days → bars” and clamps lengths to **<= 4800 bars** to avoid the 5000-bar ceiling
* Still less robust on small timeframes, but won’t crash the script

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## Visualization

* Plots the **Environment Score** as the main line (colored by score level)
* Draws reference lines at 70 / 50 / 30
* Highlights the background when **Setup** is active
* Optional trigger markers:

* **“L”** for long trigger (triangle up)
* **“S”** for short trigger (triangle down)
* A top-right info panel shows:

* HV short/long, HV percentile, compression ratio, log-Z deviation
* Environment score, Setup active status, daily bias
* Breakout status, expansion confirmation, volume confirmation
* Current mode (“1D fixed” vs “Adaptive”)

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## Alerts

Built-in alert conditions:

* Setup active (compression window)
* Long Trigger
* Short Trigger

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## Intended Use (Practical)

* Use **1D** to judge whether volatility is compressed and define bias
* Use **4H** to wait for a clean breakout plus expansion confirmation
* Avoid forcing entries during compression without a real breakout (“don’t catch falling knives” logic)

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