This is the Count Back Line. Basically, it is a volatility based indicator developed by Daryl Guppy.
You can find some info at his website (http://www.guppytraders.com/gup332.shtml), but a very clear description can be found in his book TREND TRADING.

Disclaimer: this is the first indicator I wrote so I don’t know if it is written correctly. Be careful!

// ==  S e t t i n g s  =============================
once CBLLOWRESET = 0
once MAXCYCLES = 15

// ==  C B L   ( l o w )  ===========================
once cblLow = CBLLOWRESET
once previousCblHigh = CBLLOWRESET

// When a new high appears, we try to find the 2 lower lows back
// TODO: optimize a little bit 'cause it is not required to cycle so many times every bar
if high > previousCblHigh then
 count = 0
 currentLow = low
 for i = 1 to MAXCYCLES do
  if low[i] < currentLow then
   currentLow = low[i]
   count = count +1
   if count = 2 then
    if currentLow > cblLow then
     cblLow = currentLow
     previousCblHigh = high
    endif
    break
   endif
  endif
 next
endif

// When the close is lower than CBL, it terminates
if close < cblLow then
 cblLow = CBLLOWRESET
 previousCblHigh = CBLLOWRESET
endif

// ==  C B L   ( h i g h )  =========================
once CBLHIGHRESET = 1000
once cblHigh = CBLHIGHRESET
once previousCblLow = CBLHIGHRESET

// When a new low appears, we try to find the 2 higher highs back
// TODO: optimize
if low < previousCblLow then
 count = 0
 currentHigh = high
 for i = 1 to MAXCYCLES do
  if high[i] > currentHigh then
   currentHigh = high[i]
   count = count +1
   if count = 2 then
    if currentHigh < cblHigh then
     cblHigh = currentHigh
     previousCblLow = low
    endif
    break
   endif
  endif
 next
endif

// When the close is higher than CBL, it terminates
if close > cblHigh then
 cblHigh = CBLHIGHRESET
 previousCblLow = CBLHIGHRESET
endif

// This is a trick found on prorealcode.com: basically when the
// value is a "reset" we don't want to see any line, so that it seems CBL
// is made of segments...
cblLowAlpha = 255
if cblLow = CBLLOWRESET or cblLow[1] = CBLLOWRESET then
 cblLowAlpha = 0
endif
cblHighAlpha = 255
if cblHigh = CBLHIGHRESET or cblHigh[1] = CBLHIGHRESET then
 cblHighAlpha = 0
endif
return cblLow coloured (220, 0, 0, cblLowAlpha), cblHigh coloured (230, 160, 0, cblHighAlpha)