Delta AO + Regular AO (Normalized)

🔀 Delta AO + Regular AO (Normalized) – Visualizing Market moods becomes simpler 🔀


🧠 Introduction
The Delta AO + Regular AO (Normalized) is a custom oscillator that fuses the power of classic momentum analysis with volume-derived delta flow to give traders a dual-perspective edge.

This tool was born from a need to better visualize internal market thrust (via delta) while still respecting the time-tested signal power of the traditional Awesome Oscillator (AO).


🔍 What makes it unique?

✅ Volume-based Delta Calculation – Models upward/downward delta using a custom volatility-weighted volume allocation method, not simple tick-delta or raw buys/sells.

✅ Cumulative Delta Candles – Instead of just plotting bars, the indicator rebuilds the market structure using cumulative delta logic.

✅ Dual AO Display – Shows both custom delta AO and traditional price AO simultaneously.

✅ Normalized Scaling – Each AO is independently normalized by its standard deviation (volatility-adjusted), making both indicators visually comparable without distortion.

🧮 Under the Hood
Let’s break down the components:

1. Delta Logic 📊
Rather than using raw delta or tick-level data, this script simulates net effort:

Delta Up = Volume × a smart weighting when the candle is bullish

Delta Down = Volume × weighting when the candle is bearish

The weighting dynamically adjusts based on candle body-to-wick ratio. This provides a more refined delta estimate based on candle structure.

This delta is accumulated (cumulative delta) and used to form a synthetic OHLC candle structure.

2. AO Calculations ⚖️
Custom AO: Calculated from the median of synthetic delta candles

Regular AO: Classic (median price 5-period SMA - 34-period SMA)

Both are normalized using their own 34-bar standard deviation, improving comparability and visualization in one pane.

3. Color Coding 🎨
For the delta AO histogram:

Lime: Bullish + Increasing Momentum

Green: Bullish + Weakening Momentum

Red: Bearish + Increasing Momentum (to the downside)

Maroon: Bearish + Weakening Momentum

This lets you immediately spot momentum shifts and strength behind volume-based moves.

📈 How to Use – Trading Guide
🔧 Recommended Setup:
Timeframe: Works well on all intraday and higher timeframes (5m–1D)

Symbol: Especially effective on liquid instruments (futures, indices, large caps)

✅ Entry Signals
🔹 Buy Setup
Delta AO turns green or lime above zero, and Regular AO is also rising

Ideal confirmation: Lime bar (strong bullish delta momentum) and a crossover above zero

🔹 Sell Setup
Delta AO turns maroon or red below zero, and Regular AO is also falling

Ideal confirmation: Red bar (strong bearish delta momentum) and AO falling further below zero

🔄 Momentum Confirmation
Look for divergence between the Delta AO and Regular AO.

🔼 If Delta AO is rising but Regular AO is flat or falling → Volume is leading price (possible breakout ahead)

🔽 If Regular AO is strong but Delta AO fades → Price may be unsustainable (fakeout risk)

🛑 Exit / Reversal Clues
Sudden color shifts (e.g., Lime → Green → Maroon) can signal momentum exhaustion

Both AOs converging to zero suggests consolidation phase ahead

📌 Pro Tips
Use this with volume profile, support/resistance, or market structure zones for maximum confluence

Works great as a secondary confirmation tool for your existing strategy

💬 Final Thoughts
This oscillator is not just a pretty double AO — it's a strategic fusion of price and volume time-series designed to help you anticipate shifts before they’re obvious in price alone.

If you're looking for:

A modernized AO

Volume-integrated signal clarity

Normalized, noise-filtered momentum visual

Then this tool belongs in your chart arsenal.

📈 Try it. Test it. Pair it. If you find value, consider sharing or following for more next-gen indicators.

Please note this is an educational idea and past performance is not assurance of future performance.

Happy trading!
— Pratik_4Clover