Divergence Cheat Sheet

The Divergence Cheat Sheet tool provides an on-chart reference guide to help traders identify and interpret various types of divergences between price action and technical indicators. It aims to simplify the process of recognizing trend exhaustion and potential reversals by categorizing divergences based on their type and strength.

Usage

The script displays a customizable table on the chart that serves as a visual guide for the following divergence categories:

• Regular Bullish Divergence: Signifies potential trend reversal from down to up as bears lose momentum.
• Hidden Bullish Divergence: Often found during uptrend retracements, indicating a "buy the dip" opportunity for trend continuation.
• Regular Bearish Divergence: Signifies potential trend reversal from up to down as bulls lose momentum.
• Hidden Bearish Divergence: Occurs during downtrend retracements, suggesting "sell the rally" opportunities for trend continuation.

The cheat sheet further breaks these down by strength:

• Strong: Significant disparity between price and indicator movement.
• Medium: Price exhibits equal highs/lows while the indicator shows movement.
• Weak: Indicator exhibits equal highs/lows while price continues its trend.

Details

Divergences are most effective when they occur at prior peaks or troughs and on higher time frames. While this indicator is a visual reference tool, it provides the logic typically used with oscillators like the Relative Strength Index (RSI) or the Moving Average Convergence Divergence (MACD). The display includes visual representations (ASCII art or arrows) to demonstrate the relationship between higher/lower highs and lows.

Settings

Position & Size

• Position: Determines where the cheat sheet table is located on the chart (Top, Middle, Bottom and Left, Middle, Right).
• Size: Adjusts the text size within the table (Auto, Tiny, Small, Normal, Large, Huge).

Visibility

• Divergence - Strong (Regular): Toggles the display of strong/regular divergence rules.
• Divergence - Medium: Toggles the display of medium divergence rules.
• Divergence - Weak: Toggles the display of weak divergence rules.
• Divergence - Hidden: Toggles the display of hidden divergence rules.

Additional Columns

• Bull / Bear Column: Toggles the side labels for Bullish and Bearish sections.
• Price / Indicator Column: Toggles specific labels for Price vs. Indicator rows.
• Structure Labels: Choose between Acronyms (HH, LL, etc.), Detailed text, or Arrows for the visual representation.

FAQ

How do I use this to find trades?

The Divergence Cheat Sheet is a reference tool. You should look for the patterns described in the table on your actual price chart and indicator (like RSI) to identify potential entry or exit points.

Which indicators work best with these rules?

The most common indicators used to identify these divergences are the RSI, MACD, and Stochastic oscillators.

How do I access Divergence Cheat Sheet?

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