Lempel Ziv Trend Coder TradingView Indicator

Trend tools struggle in chop, so filter the chop first. Also, lempel Ziv Trend Coder acts as a choppy market indicator TradingView traders can layer under any strategy. It ignores price levels completely. Instead it reads the last 40 bars as a string of up and down signs, counts how often each three-bar pattern repeats, and calls the market trending only when one pattern dominates the rest.

It is free and open source. Indeed, you can add it to any chart from the Lempel Ziv Trend Coder script page on TradingView, and the full Pine source is published there for you to read.

What Lempel Ziv Trend Coder plots on the price chart

The script plots one line: an 8-bar EMA that turns teal in a bullish trending regime, red in a bearish one and grey in chop. Still, diamonds mark entries, tagged LZT up below the bar or LZT dn above it, each backed by two larger translucent copies. Signal bars get recoloured, and the background carries a very faint tint while a bias holds. Thus, the top-right dashboard prints distinct patterns out of eight, current dominance, your threshold, the up fraction, the regime word, position state and bars since the last signal.

How Lempel Ziv Trend Coder is built

Turning price into a sign string

The script walks back through the window, 40 bars by default. Hence, at each step it compares three consecutive closes and writes three bits. Bit one records whether the newest close beat the one before it. Next, bits two and three do the same for the next two pairs back. Three bits give a number from 0 to 7, so every position in the window maps to one of eight patterns.

A 40-bar window produces 38 patterns. Then, the script tallies them into eight buckets. It then reads two numbers off those buckets: how many buckets hold at least one count, and what share of the total the biggest bucket holds. Yet, that share is the dominance figure on the dashboard.

Pure coin flips would spread the counts evenly, giving each pattern a share near 0.125. Real trends repeat themselves. A steady advance keeps printing the all-up pattern, which pushes one bucket well above the rest. Truly, the default threshold sits at 0.20, comfortably above the random baseline. Cross it and the script calls the regime trending.

From regime to entry

Direction comes from a separate count. Plainly, the script tracks how many bars in the window closed above the prior bar, then divides by 38. Above 0.5 and the bias reads bullish. Also, below 0.5 and it reads bearish. Both need the trending flag first, so a strong up fraction inside a choppy window arms nothing.

The trigger is a plain 8-bar EMA cross. Indeed, a buy needs close to cross above the EMA while the bullish bias holds. A sell needs the reverse. Three more gates follow. The bar must close, the position state must not already sit in that direction, and four bars must have passed since the last signal.

Note what the signal does not use. Still, distinct pattern count appears on the dashboard and drives two alerts, one at three or fewer patterns and one at seven or more. It plays no part in the entry logic. Thus, dominance alone decides whether a regime counts as trending.

How to read the signals

Watch dominance against the threshold, not in isolation. Hence, a window sitting at 0.19 with the threshold at 0.20 sits one bar away from arming. The distinct-pattern row gives you the same idea from the other side. Next, two or three patterns means a repetitive tape. Seven or eight means noise.

The EMA colour is the fastest read on the chart. Then, grey means the script sees no usable structure and will not fire at all, whatever price does around the line.

Signals land one bar after the cross completes, because the script requires a closed bar. On fast charts the EMA cross itself is common, so most of the filtering work happens at the dominance gate. Raise the threshold toward 0.30 if you want far fewer, stricter marks.

Every Lempel Ziv Trend Coder setting explained

The script exposes 9 inputs, grouped in the settings panel exactly as shown below. Defaults are the published values.

Lempel-Ziv

Setting	What it does	Default	Range
Sign Window	Bars whose sign sequence is encoded into 3-grams.	40	15 to 120

Signal Logic

Setting	What it does	Default	Range
Pullback EMA Length	Sets the pullback ema length used in the calculation.	8	3 to 50
Min Dominance (most-frequent pattern share)	Most-frequent 3-gram share. Uniform random = 0.125. Threshold above = trending regime.	0.20	0.13 to 0.50
Cooldown Bars	Sets the cooldown bars used in the calculation.	4	1 to 20

Visual

Setting	What it does	Default	Range
Show Dashboard	Toggles show dashboard on the chart.	on	on / off
Show 3-Layer Glow	Toggles show 3-layer glow on the chart.	on	on / off
Show Pullback EMA	Toggles show pullback ema on the chart.	on	on / off
Buy Color	Colour used for buy color.	#1de9b6
Sell Color	Colour used for sell color.	#ff5252

Alerts built into Lempel Ziv Trend Coder

The script ships 11 alert conditions. Yet, open the alert dialog on the chart, pick the indicator as the condition source, then choose the event you want. Alerts fire on the close of the bar, so they follow the same confirmed-bar rule the on-chart signals use.

• LZT Buy
• LZT Sell
• LZT Any Signal
• LZT Trend Start
• LZT Chop Start
• LZT Very Trendy
• LZT Very Choppy
• LZT EMA Up
• LZT Webhook JSON

Other markets and timeframes

Nothing here touches price scale. Truly, the script only compares each close with the one before it, so the whole calculation runs on signs. That makes it fully market-agnostic. Plainly, gold, indices, crypto and equities all share the same 0.125 random baseline and the same 0.20 default threshold. Volume plays no part, so instruments without a volume feed lose nothing. Also, the one input worth tuning per chart is the window. Forty bars covers two months on a daily chart and roughly three hours on M5.

Limitations worth knowing

This measures repetition in the sign sequence. Indeed, it carries no view on price level, support, structure or news. It cannot tell you where a trend might end. Still, it only tells you the recent tape looks repetitive rather than random.

The measure is a Lempel-Ziv style proxy, not the compression algorithm itself. Thus, real LZ builds a growing dictionary of novel substrings and reads complexity off dictionary growth. This script counts three-bar sign patterns over a fixed window and takes the most frequent share. Hence, same family of idea, much simpler implementation.

A 40-bar window means the regime lags. Next, roughly half the window must fill with new behaviour before dominance shifts, so the tool confirms trends rather than predicting them. No stop, target or sizing logic exists anywhere in the script.

Get Lempel Ziv Trend Coder on TradingView

Open Lempel Ziv Trend Coder on TradingView

If you also trade MetaTrader, the MT4 and MT5 indicator library is available below.

Using it alongside MetaTrader

Adding a script on TradingView takes one click, so there is no install step here. Yet, if you want the same idea on MetaTrader, the MT4 and MT5 indicator installation guide walks through copying files into the data folder and attaching them to a chart. You can also browse the full MetaTrader indicator library, the MT4 indicators section, or the other free TradingView scripts published on this profile. For related chart tools see the MT5 indicators section and the forex trading strategies guides.

External references

• Breadth of market on Wikipedia
• Stochastic Oscillator at Investopedia
• Stock Market Cycles at StockCharts ChartSchool

Frequently asked questions

Does the Lempel Ziv Trend Coder repaint?

No. Truly, both diamond plotshapes read buySignal and sellSignal, and each requires barstate.isconfirmed. Marks appear only after the bar closes, so the historical chart matches live behaviour.

Is this the real Lempel-Ziv compression algorithm?

No, and the code does not pretend otherwise. Plainly, LZ77 and LZ78 build a dictionary of previously unseen substrings and measure complexity by how fast it grows. This script encodes 3-bar sign patterns into eight buckets and reports the most frequent share. Also, it borrows the idea that repetitive strings compress well.

What dominance value counts as trending?

The default gate is 0.20. Indeed, uniform random data lands near 0.125, so 0.20 sits meaningfully above noise without demanding a perfect run. Readings above 0.30 usually mean one pattern repeats hard, which happens during strong directional moves.

Why did a clean EMA cross produce no diamond?

Three gates can block it. Still, dominance sat under your threshold, so the regime read choppy. The position state already pointed that way. Thus, or fewer than four bars had passed since the previous signal. The dashboard shows dominance and position, so you can see which one applied.

How much should I rely on this indicator?

Treat it as one input, not a decision. Hence, it is a chart analysis tool, not trading advice. Test it on your own markets and timeframes before relying on it. Results are not guaranteed; past performance is not indicative of future results.