Price Divergence Detector V1

The Price Divergence Detector V1 indicator identifies and visualizes both regular and hidden divergences between price action and several popular momentum oscillators or volume-based metrics directly on the price chart.

Usage

The Price Divergence Detector V1 is designed to help traders spot potential trend reversals and continuations by detecting discrepancies between price and technical indicators.

• Regular Bullish Divergence: Occurs when price makes a lower low, but the oscillator makes a higher low. This suggests waning downward momentum and a potential upward reversal.
• Regular Bearish Divergence: Occurs when price makes a higher high, but the oscillator makes a lower high. This suggests weakening upward momentum and a potential downward reversal.
• Hidden Bullish Divergence: Occurs when price makes a higher low, but the oscillator makes a lower low. This often signals a continuation of the existing uptrend.
• Hidden Bearish Divergence: Occurs when price makes a lower high, but the oscillator makes a higher high. This often signals a continuation of the existing downtrend.

The script plots circles on fractal points where these divergences are detected. If labels are enabled, "R" signifies a Regular divergence and "H" signifies a Hidden divergence.

Details

The script utilizes a fractal-based detection system (5-bar fractal pattern) to identify significant swing highs and lows in both price and the selected oscillator method. By comparing the values of these fractals against the previous confirmed fractal, the script can mathematically determine if a divergence exists.

Supported calculation methods include:

• RSI: Relative Strength Index.
• MACD: Moving Average Convergence Divergence.
• STOCH: Stochastic Oscillator.
• VOLUME: Simple Volume moving average.
• ACC/DIST: Accumulation/Distribution.
• FISHER: Fisher Transform.

Settings

General Settings

• Method: Selects the oscillator or metric used to compare against price (RSI, MACD, STOCH, VOLUME, ACC/DIST, or FISHER).
• Show Labels?: Toggles the visibility of "R" (Regular) and "H" (Hidden) labels above/below the divergence points.
• Show Channel?: Toggles the visibility of the connecting lines between fractal points when no divergence is present.

Oscillator Settings

• RSI/STOCH/Volume/ACC-DIST/Fisher Smooth: Sets the lookback period or smoothing length for the selected calculation method.
• MACD Source: The price source used for MACD calculations (default is Close).
• MACD Fast: The period for the fast moving average in the MACD calculation.
• MACD Slow: The period for the slow moving average in the MACD calculation.
• MACD Smooth Signal: The period for the MACD signal line smoothing.

FAQ

How do I use the Price Divergence Detector V1?

You can use this tool to identify potential market turning points. Regular divergences are often used for reversals, while hidden divergences are typically used for trend continuation entries.

Which method is best for detecting divergences?

The "best" method depends on the asset and timeframe. RSI and MACD are the most common for momentum-based reversals, while Volume or Acc/Dist can provide insight into buying/selling pressure divergences.

How can I get access to this tool?

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