Gamma Hedging Pressure

Gamma Hedging Pressure (Proxy) – Market Maker Gamma Exposure Estimator

This open-source, non-overlay indicator provides a **proxy** for dealer/market-maker gamma hedging pressure using only standard OHLCV data — no options chain or implied volatility required.

Core Concept
In options markets, gamma measures how much delta changes with price movement. When dealers are **net short gamma** (negative gamma), they must hedge aggressively in the direction of the move → this amplifies trends and breakouts. When **net long gamma** (positive gamma), they hedge against the move → this creates mean-reversion and pinning behavior.

Because true gamma exposure is hidden (dealer books are private), this script estimates hedging pressure indirectly by combining:
- Volatility expansion (normalized range)
- Price acceleration (second derivative)
- Abnormal volume participation

High positive values → likely negative gamma regime (trend acceleration)
High negative values → likely positive gamma regime (reversion pressure)
Near zero → neutral/chop

Why this proxy is useful
True gamma dashboards require Level 2 options data and are often delayed or paid. This lightweight version:
- Works on any instrument with volume (stocks, futures, forex proxies, crypto)
- Updates in real time
- Helps traders anticipate whether the current move is likely to accelerate (negative gamma) or fade (positive gamma)
- Useful as a regime filter alongside support/resistance, order flow, or momentum tools

How It Works – Step by Step
1. Volatility Expansion
- Normalized range = (high - low) / ATR(14)

2. Price Acceleration
- First difference: close - close[1]
- Second difference (acceleration): diff - diff[1]

3. Volume Participation
- Normalized volume = volume / SMA(volume, 20)

4. Raw Pressure
- rawPressure = normalized range × acceleration × normalized volume

5. Smoothed Gamma Pressure
- gammaPressure = EMA(rawPressure, 5) // short smoothing for responsiveness

6. Optional Daily Reset
- If enabled, resets to 0 at the start of each new day (useful for intraday)

7. Regime Classification
- Negative Gamma (red): gammaPressure > +threshold (default 0.5) → trend/breakout likely
- Positive Gamma (green): gammaPressure < -threshold → mean-reversion likely
- Neutral (gray): within ±threshold → chop/consolidation

Visual Output
- Histogram: colored by regime (red = negative gamma / trend accel, green = positive gamma / reversion, gray = neutral)
- Zero line reference
- Background tint: red/green during strong regimes
- Last-bar label: "NEGATIVE GAMMA – Trend / Breakout", "POSITIVE GAMMA – Mean Reversion", or "NEUTRAL"

How to Use
- Best on intraday timeframes (5m–1h) for futures (NQ, ES, GC), indices, or high-volume stocks
- Daily/4h for swing context on liquid names
- Interpretation examples:
→ Red histogram + rising pressure → dealers likely short gamma → expect trend continuation or acceleration
→ Green histogram + falling pressure → dealers long gamma → expect fading moves, pinning near strikes, or reversion
→ Gray/neutral → low gamma pressure → range-bound or low-conviction market
- Combine with:
- Key levels (VWAP, previous highs/lows)
- Volume profile or order flow
- Options-related news (expiration days, gamma flips)
- Threshold tuning: 0.3–0.8 depending on instrument volatility (lower for crypto, higher for forex)

Inputs
- ATR Length: default 14
- Volume MA Length: default 20
- Gamma Threshold: default 0.5 (sensitivity for regime coloring)
- Reset on New Session: true = daily reset (recommended for intraday)

Publishing Recommendation
- Publish with a clean chart (e.g., 15m–1h NQ1!, ES1!, or SPY)
- Show a trending period (red histogram) and a ranging/consolidation period (green/gray)
- No extra indicators/drawings needed for basic interpretation

This is an **educational proxy** — not a direct measure of actual dealer gamma. It approximates pressure from observable market behavior. Trading involves significant risk of loss. Use discretion and proper risk management.

Feedback welcome — especially threshold or smoothing suggestions for different markets!