Divergence Analyzer

The Divergence Analyzer indicator identifies and visualizes divergence patterns between two different financial instruments by calculating the delta of their respective price deviations from a linear regression trend.

Usage

The tool is primarily used to spot relative strength or weakness between two assets. By comparing the price movements of two instruments (e.g., Gold vs. S&P 500), traders can identify when one asset is deviating significantly from the trend of another.

The main output is the Divergence Delta plot:

• Positive Divergence (Green): Occurs when the delta between the two instruments is positive, suggesting the primary symbol is outperforming the secondary symbol relative to their trends.
• Negative Divergence (Red): Occurs when the delta is negative, suggesting underperformance of the primary symbol relative to the secondary one.

Traders can use the zero-line crossovers as signals for potential trend shifts or mean reversion opportunities between the paired assets.

Details

The script operates by requesting price data for two symbols and applying a logarithmic transformation to ensure accurate representation of percentage-based price movements. It calculates a linear regression for both symbols over a user-defined period, which is then smoothed using an Exponential Moving Average (EMA) to filter out market noise.

The "Divergence Delta" is derived by subtracting the price difference of the second symbol (from its regression trend) from the price difference of the first symbol. This normalization process allows for a direct comparison between assets that may have vastly different price scales.

Settings

Default Mode

• Divergence with: Allows you to select the second symbol to compare against the chart symbol.

Use Instead of Chart Symbol

• Use Instead of Chart Symbol: When enabled, the indicator ignores the current chart symbol and uses a specific symbol for the first part of the calculation.
• Symbol Choice: The specific symbol to be used as the primary instrument if the above toggle is active.

General Settings

• Length: Sets the lookback period for the linear regression and standard deviation calculations.
• Positive Divergence: Sets the color for the delta plot when the value is above zero.
• Negative Divergence: Sets the color for the delta plot when the value is below zero.

FAQ

How do I use the Divergence Analyzer?

Select a secondary symbol in the settings to compare against your current chart. Observe the Divergence Delta histogram for crossovers and color changes to identify relative performance shifts.

Can I compare two symbols that are not on my current chart?

Yes, by enabling the "Use Instead of Chart Symbol" option, you can manually define both Symbol 1 and Symbol 2 regardless of what chart you are currently viewing.

How can I access Divergence Analyzer?

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