Awesome Oscillator Divergences

The Awesome Oscillator Divergences indicator identifies potential trend reversals and continuations by detecting discrepancies between price action and momentum. By utilizing the Awesome Oscillator (AO) as its core momentum engine, this tool highlights both regular and hidden divergences directly on the chart to assist traders in identifying market exhaustions or trend strength.

Usage

The Awesome Oscillator Divergences tool is primarily used to spot momentum shifts that are not immediately visible through price action alone.

• Regular Bullish Divergence: Occurs when price makes a lower low while the AO makes a higher low. This suggests downward momentum is fading and a reversal to the upside may occur.
• Regular Bearish Divergence: Occurs when price makes a higher high while the AO makes a lower high. This indicates upward momentum is weakening and a reversal to the downside may be imminent.
• Hidden Divergences: These are used to identify trend continuation. A Hidden Bullish divergence (higher low in price, lower low in AO) suggests the primary uptrend is likely to continue, while a Hidden Bearish divergence (lower high in price, higher high in AO) suggests the downtrend remains intact.

Details

The script calculates the Awesome Oscillator as the difference between a Fast EMA and a Slow EMA of the median price (HL2). Divergences are identified by comparing the relative peaks and troughs (pivots) of the price action against those of the oscillator.

The indicator uses a lookback mechanism defined by "Pivot Lookback" settings to confirm pivot points. Once a pivot is confirmed on the oscillator, the script checks if a corresponding divergence exists within a specific range of bars. Because the script relies on pivot points, signals are plotted with an offset corresponding to the "Pivot Lookback Right" setting to ensure the peak or trough has been fully formed.

Settings

• AO Fast EMA Length: Sets the period for the shorter Exponential Moving Average used in the AO calculation.
• AO Slow EMA Length: Sets the period for the longer Exponential Moving Average used in the AO calculation.
• Pivot Lookback Right: The number of bars to the right of a peak or trough required to confirm a pivot.
• Pivot Lookback Left: The number of bars to the left of a peak or trough required to identify a pivot.
• Max of Lookback Range: The maximum number of bars allowed between two pivots for a divergence to be valid.
• Min of Lookback Range: The minimum number of bars required between two pivots for a divergence to be valid.
• Plotting Toggles: Individual checkboxes to enable or disable the display of Regular Bullish, Hidden Bullish, Regular Bearish, and Hidden Bearish signals.

FAQ

How do I interpret the labels on the chart?

Labels marked "Bull" or "Bear" represent regular divergences, while "H Bull" or "H Bear" represent hidden divergences. These appear on the AO line at the point where the divergence was confirmed.

Why do signals appear several bars after a price peak?

The script uses pivot points which require a specific number of bars to the right (Pivot Lookback Right) to confirm that a high or low has actually been formed. This prevents "repainting" of signals.

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.