Effort-Result Divergence [Interakktive]

The Effort-Result Divergence (ERD) measures whether volume effort is producing proportional price result. It quantifies the classic Wyckoff principle: when price moves easily, momentum is real; when price struggles despite heavy volume, absorption is occurring.

Think of ERD as "energy efficiency" for price movement — green means price is gliding, red means price is grinding.


█ WHAT IT DOES

• Measures volume EFFORT relative to average volume
• Measures price RESULT relative to ATR-normalized movement
• Computes ERD = Result minus Effort (each scaled 0-100)
• Flags statistical divergences via Z-score analysis
• Absorption events: high effort, low result (negative ERD)
• Vacuum events: low effort, high result (positive ERD)


█ WHAT IT DOES NOT DO

• NO buy/sell signals
• NO entry/exit recommendations
• NO alerts (v1 is educational only)
• NO performance claims or guarantees

This is a context tool for understanding market participation quality.


█ HOW IT WORKS



The ERD analyzes two dimensions of market activity and compares them.

EFFORT (Volume Intensity)

Compares current volume to a moving average baseline:

Effort Ratio = Volume ÷ SMA(Volume, Length)
Effort Score = clamp(100 × Effort Ratio ÷ Effort Cap)

High effort means above-average volume participation.
Low effort means below-average volume participation.

RESULT (Price Efficiency)

Measures how much price moved relative to expected volatility:

Result Ratio = |Close − Previous Close| ÷ ATR
Result Score = clamp(100 × Result Ratio ÷ Result Cap)

High result means price moved significantly for the volatility regime.
Low result means price barely moved despite market activity.

ERD SCORE

ERD = Result − Effort

• Positive ERD: Result exceeds effort → price moved easily (vacuum/thin liquidity)
• Negative ERD: Effort exceeds result → price struggled (absorption/accumulation)
• Near zero: Balanced effort-to-result relationship


STATISTICAL DIVERGENCE DETECTION

Z-score analysis identifies statistically significant extremes:

Z = (ERD − Mean) ÷ StdDev

• Absorption Event: Z ≤ −threshold (extreme negative ERD)
• Vacuum Event: Z ≥ +threshold (extreme positive ERD)


█ INTERPRETATION



GREEN BARS (Positive ERD)
Price moved with relatively little volume effort. This suggests:
• Thin liquidity / low resistance
• Strong directional interest
• Momentum is "real" — not forced

RED BARS (Negative ERD)
Heavy volume was used but price barely moved. This suggests:
• Absorption / accumulation occurring
• Large players opposing the move
• Inefficiency — someone is working hard for little result

THE KEY INSIGHT

When you see:
• Down moves = high effort (red spikes)
• Up moves = low effort (green bars)

This means: It's easier for price to go up than down.
That is asymmetric strength — classic bullish pressure.

The reverse (red on up moves, green on down moves) signals bearish pressure.

PRACTICAL RULES

Without any other indicators:

• Avoid shorting when ERD is mostly green and red spikes appear only on down candles
• Be cautious buying when ERD turns red on up candles (signals absorption of buying pressure)
• Vacuum events (extreme green) often precede continuation or pause — not violent reversal
• Absorption events (extreme red) often precede reversals or range formation


█ VOLUME DATA NOTE

This indicator uses the volume variable which represents:
• Exchange volume on stocks and futures
• Tick volume on Forex and CFD instruments

Tick volume is a proxy for activity, not actual exchange volume. The indicator remains useful on Forex as relative volume comparisons are still meaningful, but interpretation should account for this limitation.


█ INPUTS

Core Settings
• Volume Average Length: Baseline period for effort calculation (default: 20)
• ATR Length: Volatility normalization period (default: 14)
• Effort Cap: Volume ratio that maps to 100% effort (default: 3.0)
• Result Cap: ATR multiple that maps to 100% result (default: 1.0)

Divergence Detection
• Z-Score Lookback: Statistical analysis window (default: 100)
• Z-Score Threshold: Standard deviations for event flags (default: 2.0)

Visual Settings
• Show ERD Histogram: Toggle main display
• Show Zero Line: Toggle reference line
• Show Divergence Markers: Toggle event circles
• Show Effort/Result Lines: Display component breakdown


█ ORIGINALITY

While Wyckoff's effort-versus-result principle is well-established, existing implementations are typically:
• Purely visual with no quantification
• Pattern-based requiring subjective interpretation
• Not statistically normalized for comparison across instruments

ERD is original because it:
1. Normalizes both effort and result to 0-100 scales for direct comparison
2. Uses ATR for result normalization (adapts to volatility regime)
3. Applies statistical Z-score for objective divergence detection
4. Provides quantified output suitable for systematic analysis


█ DATA WINDOW EXPORTS

When enabled, the following values are exported:
• Effort (0-100)
• Result (0-100)
• ERD Score
• Z-Score
• Absorption Event (1/0)
• Vacuum Event (1/0)


█ SUITABLE MARKETS

Works on: Stocks, Futures, Forex, Crypto
Best on: Instruments with reliable volume data (stocks, futures, crypto)
Timeframes: All timeframes — interpretation adapts accordingly


█ RELATED

• Market Efficiency Ratio [Interakktive] — measures price path efficiency
• Wyckoff Volume Spread Analysis — conceptual foundation


█ DISCLAIMER

This indicator is for educational purposes only. It does not constitute financial advice. Past performance does not guarantee future results. Always conduct your own analysis before making trading decisions.