Microstructure Participation & Acceptance Indicator

📊 Microstructure Participation & Acceptance Indicator
An advanced participation-based filter combining VWAP distance analysis, volume delta detection, and real-time acceptance/rejection state identification—designed for smaller timeframe trading.

📊 FEATURES
VWAP Distance Normalization
Context-aware fair value measurement:

Automatically resets based on selected anchor (Session/Week/Month)
ATR-normalized distance calculation for universal application
Identifies when price is extended or compressed relative to equilibrium
Configurable extreme distance threshold (default: 1.5 ATR)
Adjustable source input (default: HLC3)

Volume Delta Proxy
Bull vs Bear participation tracking:

Calculates volume imbalance between bullish and bearish candles
EMA smoothing for cleaner signal generation (default: 9 periods)
Delta ratio measurement to identify dominant side
Expansion/compression detection to gauge momentum commitment
Configurable expansion threshold (default: 1.3x)

Acceptance/Rejection State Machine
Real-time market regime identification with six distinct states:
🟢 Accepted Long

Price moving away from VWAP with expanding bullish delta
Distance from VWAP increasing
Volume confirming the move
Indicates real buying pressure—trade WITH the move

🟢 Accepted Short

Price moving away from VWAP with expanding bearish delta
Distance from VWAP increasing
Volume confirming the move
Indicates real selling pressure—trade WITH the move

🟠 Fade Long

Price extended beyond threshold (>1.5 ATR above VWAP)
Delta not supporting the extension
Volume participation absent or diminishing
Potential mean-reversion short setup

🟠 Fade Short

Price extended beyond threshold (>1.5 ATR below VWAP)
Delta not supporting the extension
Volume participation absent or diminishing
Potential mean-reversion long setup

⚪ Chop

Price compressed near VWAP
Bollinger Bands tight (width compressed)
Delta neutral—no clear commitment
NO TRADE ZONE—wait for expansion

⚪ Neutral

Transitional state between regimes
Momentum shifting but not yet confirmed
Monitor for next acceptance signal

Bollinger Bands
Standard volatility measurement with TradingView default styling:

Adjustable period length (default: 20)
Configurable standard deviation multiplier (default: 2.0)
Visual fill between bands for volatility context
Used internally for chop/compression detection

Live Dashboard
Real-time metrics display (top-right corner):

Current market state with color coding
VWAP distance in ATR units
Delta ratio (bull/bear volume balance)
Delta state (Expanding/Compressing)
High-contrast design for instant readability


🎯 HOW TO USE
For Trend Trading:

Accepted Long/Short backgrounds indicate confirmed participation—stay with the trend
Strong moves typically travel 1-1.5 ATR from VWAP with delta support
Use VWAP as dynamic support/resistance
Combine with momentum indicators (MACD, RSI) for confluence
Price above VWAP + Accepted Long state = bullish bias
Price below VWAP + Accepted Short state = bearish bias

For Mean Reversion:

Fade Long/Short states signal overextension without participation
Price beyond 1.5 ATR from VWAP with weak delta = potential reversal
Look for price return to VWAP when extended
Bollinger Band extremes + Fade state = high-probability mean reversion setup
VWAP acts as mean reversion anchor during range-bound sessions

For Risk Management:

Chop state = avoid new entries
Bollinger Band compression + Chop = pre-expansion zone (wait for breakout)
Delta compression after strong move = early exhaustion warning
State transitions (Accepted → Neutral → Fade) = tighten stops

Signal Confirmation:
Strongest setups occur when multiple factors align:

BB breakout + Accepted state + price above/below VWAP
Price rejection at BB bands + Fade state
VWAP support/resistance hold + state transition
Delta expansion + distance increasing + trend direction


⚙️ SETTINGS
All components are fully customizable through organized input groups:
VWAP Distance Group:

VWAP source (default: HLC3)
Anchor period (Session/Week/Month)
ATR length for normalization (default: 14)
Extreme distance threshold in ATR multiples (default: 1.5)

Volume Delta Group:

Delta EMA length (default: 9)
Delta expansion threshold (default: 1.3)

Acceptance Logic Group:

Acceptance lookback period (default: 5)
Chop threshold in VWAP/ATR units (default: 0.3)

Bollinger Bands Group:

BB length (default: 20)
Standard deviation multiplier (default: 2.0)

Display Group:

Toggle state backgrounds
Toggle state change labels
Toggle VWAP line
Toggle Bollinger Bands


💡 EDUCATIONAL VALUE
This indicator teaches important concepts:

How institutional money identifies fair value (VWAP)
The difference between price movement and market acceptance
Why volume participation matters more than price action alone
How to distinguish between noise and committed directional moves
The relationship between volatility compression and expansion cycles
Why distance from equilibrium predicts mean reversion probability


⚠️ IMPORTANT NOTES

This indicator is for educational and informational purposes only
This is a filter, not a standalone trading system
No indicator is perfect—always use proper risk management
Past performance does not guarantee future results
Combine with your own analysis and risk tolerance
Test thoroughly on historical data before live trading
This is not financial advice—use at your own risk


🔧 TECHNICAL DETAILS

Pine Script Version 6
Overlay indicator (displays on price chart)
All calculations use standard, well-documented formulas
No repainting—all signals are confirmed on bar close
Compatible with all timeframes and instruments
Optimized for smaller timeframes (1-5 minute charts)
Minimal computational overhead


📝 CHANGELOG
Version 1.0

Initial release
VWAP distance normalization with ATR scaling
Volume delta proxy system (bull/bear EMA)
6-state acceptance/rejection state machine
Bollinger Bands integration
Real-time dashboard with live metrics
State change labels and background coloring
Full customization options


Developed for traders who need objective participation filters to distinguish high-probability setups from low-quality noise—without cluttering their charts with multiple indicator panels.