Divergence MFI

The Divergence MFI indicator is a specialized screening tool designed to identify and highlight both regular and hidden divergences between price action and the Money Flow Index (MFI). By automating the detection of these momentum discrepancies, the tool provides traders with visual cues for potential trend reversals or continuations directly on the oscillator pane.

Usage

The indicator can be used to spot four distinct types of market conditions based on divergence patterns:

• Regular Bullish (Label "D"): Occurs when the price makes a lower low, but the MFI makes a higher low. This suggests a potential upward reversal.
• Hidden Bullish (Label "H"): Occurs when the price makes a higher low, but the MFI makes a lower low. This often indicates a trend continuation.
• Regular Bearish (Label "D"): Occurs when the price makes a higher high, but the MFI makes a lower high. This suggests a potential downward reversal.
• Hidden Bearish (Label "H"): Occurs when the price makes a lower high, but the MFI makes a higher high. This typically signals a bearish trend continuation.

Traders can adjust the lookback periods to filter for specific swing sizes and use the toggle settings to focus on specific divergence types that suit their strategy.

Details

The script calculates the Money Flow Index using a volume-weighted relative strength formula. It identifies pivot highs and lows within the MFI oscillator and compares them to the corresponding price levels within a user-defined lookback range. If the price and oscillator movements deviate according to standard divergence rules, a label and a colored line segment are plotted. To ensure accuracy, the tool uses an offset mechanism to align labels with the specific pivot point where the divergence was confirmed.

Settings

MFI Configuration

• MFI Period: Sets the number of bars used to calculate the Money Flow Index (default is 14).
• MFI Source: Determines the price source used for the MFI calculation (e.g., Close).

Detection Range

• Pivot Lookback Right/Left: Defines the number of bars required on either side of a high or low to confirm a pivot point.
• Max/Min of Lookback Range: Sets the window (in bars) within which the script searches for a previous pivot to compare for divergence.

Visibility Toggles

• Plot Bullish / Hidden Bullish: Enables or disables the visual labels for bullish patterns.
• Plot Bearish / Hidden Bearish: Enables or disables the visual labels for bearish patterns.

FAQ

How do I interpret the "D" and "H" labels?

The "D" label stands for Regular Divergence (often used for reversals), while the "H" label stands for Hidden Divergence (often used for trend continuation).

Can I set alerts for these signals?

Yes, the indicator includes built-in alert conditions for Regular and Hidden Bullish/Bearish divergences, allowing you to receive notifications when a pattern is confirmed.

How can I access the Divergence MFI?

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