PPO Bull/Bear Divergence to High/Low Strategy

The PPO Bull/Bear Divergence to High/Low Strategy indicator provides a systematic trading approach by identifying Percentage Price Oscillator (PPO) divergences for entries and price extreme points for exits.

Usage

The indicator is designed to capture trend reversals through the identification of discrepancies between price action and momentum.

• Long Entries: Occur when a bullish divergence is detected (represented by green/bullish circles on the PPO). This happens when price makes a lower low while the PPO makes a higher low.
• Short Entries: Occur when a bearish divergence is detected (represented by red/bearish circles on the PPO). This happens when price makes a higher high while the PPO makes a lower high.
• Exits: The strategy closes long positions at PPO peak points (tops) and closes short positions at PPO trough points (bottoms), aiming to capture the meat of the momentum move.

Details

This tool is based on the Percentage Price Oscillator (PPO), a momentum indicator that measures the difference between two moving averages. By using percentages rather than absolute values, it allows for better comparison across different price levels. The strategy incorporates both standard and long-term divergence logic to filter for higher-probability setups. It specifically looks for "delayed" highs and lows to ensure the price pivot and the oscillator pivot are synchronized within a specific lookback window.

Settings

General Settings

• Source: Determines the price data used for calculations (default is Open).
• Use long term Divergences?: Toggles the inclusion of long-term divergence detection logic.
• Lookback Period: Sets the number of bars used to look back for price and oscillator extremes.
• Fast Length: The period for the shorter Exponential Moving Average (EMA).
• Slow Length: The period for the longer Exponential Moving Average (EMA).
• Signal Length: The period for the signal line calculation.
• Smoother: A smoothing factor applied to the PPO line to reduce noise.

FAQ

How do I interpret the divergence circles?

Large green circles indicate bullish divergences for potential long entries, while large red circles indicate bearish divergences for potential short entries.

When does the strategy exit a trade?

The strategy exits a long trade when the PPO reaches a local maximum (top) and exits a short trade when the PPO reaches a local minimum (bottom).

How can I access this tool?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.