Currency Strength Indicator Divergence

The Currency Strength Indicator Divergence tool identifies discrepancies between a composite index of multiple currency Relative Strength Index (RSI) values and the RSI of the specific instrument displayed on the chart. By aggregating the strength of six user-defined symbols, it provides a broader context of market momentum to pinpoint potential reversal or continuation points through divergence analysis.

Usage

The indicator can be used to identify trend exhaustion or strength by comparing the price action's momentum (via its RSI) against a basket of related instruments.

• Regular Divergences: Occur when price makes a higher high but the composite index makes a lower high (Bearish), or price makes a lower low while the index makes a higher low (Bullish). These are typically used to spot potential trend reversals.
• Hidden Divergences: Occur when price makes a higher low but the index makes a lower low (Bullish), or price makes a lower high but the index makes a higher high (Bearish). These often signal trend continuation.
• Extreme Levels: The overbought (80) and oversold (20) levels help identify when the aggregated currency strength is at an extreme, suggesting a higher probability for the identified divergences to play out.

Details

The script calculates the RSI for six different symbols specified in the settings. It then averages these RSI values (based on high, low, and close prices) to create a "Currency Strength" oscillator. The divergence logic utilizes a fractal-based approach (looking back 2 bars from a peak/trough) to identify pivot points in the oscillator and compare them with the price's own RSI peaks and troughs. This multi-symbol approach helps filter out noise inherent in a single pair by looking at the broader strength or weakness of a base currency (e.g., USD) across multiple counterparts.

Settings

• Instrument 1 - 6: Allows the user to select the six symbols used to construct the aggregate currency strength index.
• RSI Length: The lookback period used for the RSI calculation on all selected instruments and the chart symbol.
• Oversold Level: The threshold level used to identify oversold conditions (default is 20).
• Overbought Level: The threshold level used to identify overbought conditions (default is 80).

FAQ

How do I interpret the labels on the chart?

Labels marked with 'R' indicate Regular Divergences (reversal signals), while labels marked with 'H' indicate Hidden Divergences (continuation signals). Red labels represent bearish outlooks and green labels represent bullish outlooks.

Can I use this for non-Forex symbols?

Yes, while designed for Currency Strength, you can input any six tickers (stocks, crypto, indices) to compare a specific asset against a custom sector or market index.

How can I access Currency Strength Indicator Divergence?

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