Global Net Liquidity (TG fork)

1 Mei

Worldwide net liquidity, with trend coloring.
Global Net Liquidity attempts to represent worldwide net liquidity, and is defined as: Fed + Japan + China + UK + ECB - RRP - TGA , Where the first five components are central bank assets.

On TradingView, the indicator can be reproduced with the following equations: Global Net Liquidity = FRED:WALCL + FRED:JPNASSETS * FX_IDC:JPYUSD + CNCBBS * FX_IDC:CNYUSD + GBCBBS * FX:GBPUSD + ECBASSETSW * FX:EURUSD + RRPONTSYD + WTREGEN

However, this indicator adds a moving average cloud, and margin coloring, which eases historical trend assessment at a glance.

This indicator can be seen as an alternative representation of the accumulation/distribution indicator (and hence the same terms can be used in this description).

The Moving Average Cloud is simply the filling between the moving average (by default an EMA) and the current value. This feature was inspired by D7R ACC/DIST closed-source indicator, kudos to D7R for making such neat visual indicators.

Usage instructions:

• Blue is more likely a phase of accumulation because the current value is above its historical price as defined by the moving average,
  
• red is when this is more likely a phase of distribution.
  
• Yellow is when the difference is below the margin, so we consider it is insignificant and that the trend is undecided. This can be disabled by setting the margin to 0.
  

While the color indicates if it's more likely an accumulation (blue) or distribution (red) phase or undecided (yellow), the cloud's vertical size allows to assess the strength of this tendency and the horizontal size the momentum, so that the bigger the cloud, the stronger the accumulation (if cloud is blue) or distribution (if cloud is red).

Why is that so? This is because the cloud represents the difference between the current tendency and the moving averaged past one, so a bigger cloud represents a bigger departure from recently observed tendencies. In practice, when there is accumulation, a pump in price can be expected soon, or if it already happened then it means it is indeed supported by volume, whereas if distribution, either a dump is to be expected soon, or if it already happened it means it's supported by volume.

Or maybe not necessarily a dump, but if there is a move upward in price, but the indicator indicates a strong distribution, then it means that the price movement is not supported and may not be sustainable (reversal may happen at anytime), whereas if price is going upward AND there is an accumulation (blue coloring) then it is more sustainable. This can be used to adapt strategies accordingly (risk on/risk off depending on whether there is concordance of both price and accumulation/distribution).

This indicator also includes sentiment signals that can be used to trigger alarms.

This indicator is a remix of Dharmatech's, who authored the first this Global Net Liquidity equation, kudos to them! Please show them some love if you like this indicator!