Stefan Krecher: Jeddingen Divergence v2

The Stefan Krecher: Jeddingen Divergence v2 indicator identifies potential trend reversals by detecting momentum divergences based on linear regression price data. This tool helps traders spot instances where price movement and momentum disagree, signaling a possible exhaustion in the current trend.

Usage

The indicator can be used to identify bullish and bearish divergence signals directly on the price chart. When a divergence is detected, the linear regression line changes color to highlight the event:

• Bullish Divergence: Occurs when the linear regression price is falling over a specified number of candles, but the momentum of that price is rising. This is typically highlighted in green.
• Bearish Divergence: Occurs when the linear regression price is rising over a specified number of candles, but the momentum of that price is falling. This is typically highlighted in red.

Traders can use these highlighted segments as early warnings for trend shifts or as confirmation for existing mean-reversion strategies.

Details

The script operates by calculating a linear regression of the closing price to smooth out noise. It then monitors two primary conditions over a user-defined lookback window:

1. The directional movement (rising or falling) of the linear regression line.
2. The directional movement of the momentum (change in value) of that same linear regression line.

A "Jeddingen Divergence" is defined as a state where the price direction and the momentum direction are inverse for a minimum number of consecutive bars. Version 2 includes optimized alert conditions for both bullish and bearish scenarios.

Settings

• Number of candles that need to diverge: Sets the required consecutive bars for the divergence condition to be met (default is 5).
• Price related linear regression length: Determines the smoothing period for the price data used in the calculation.
• Momentum length: Sets the period used to calculate the momentum of the linear regression line.

FAQ

How do I use the divergence signals?

The signals appear as colored segments on the plot. A green segment suggests that while price is falling, momentum is starting to turn upward, indicating a potential bullish reversal. A red segment suggests the opposite for bearish reversals.

Can I set alerts for these signals?

Yes, this version includes specific alert conditions for "Bearish Jeddingen Divergence" and "Bullish Jeddingen Divergence" which can be configured through the TradingView Alerts menu.

How can I access the Stefan Krecher: Jeddingen Divergence v2?

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