ADX Divergence Indicator

The ADX Divergence Indicator tool identifies potential trend reversal and momentum shifts by analyzing the relationship between the Average Directional Index (ADX) and its Directional components (+DI and -DI) alongside EMA filters.

Usage

The ADX Divergence Indicator plots colored circles on the chart to signify potential entry or exit points based on directional strength:

• Bullish Signal (Green Circle): Appears when the +DI line is rising and the -DI line is falling, combined with a "bounce" in the ADX value and specific EMA alignment.
• Bearish Signal (Red Circle): Appears when the -DI line is rising and the +DI line is falling, combined with a "bounce" in the ADX value and specific EMA alignment.

Users should look for these signals during periods of volatility. The signals are automatically filtered by an ADX Threshold to ensure that indications only appear when there is sufficient trend strength.

Details

The indicator calculates the standard Directional Movement Index (DMI) components. A key concept in this script is the "Bounce" condition, which occurs when the current ADX value is lower than the previous one, and that previous value was a local peak (higher than the value before it).

Furthermore, the script incorporates Exponential Moving Averages (EMA 9 and EMA 14) as trend filters. Even if the DI lines show a divergence, the signal will be invalidated if the price action relative to these EMAs does not support the direction of the trade, reducing potential noise in choppy markets.

Settings

• Create Alerts: Enables or disables the execution of script-level alerts.
• ADX Length: Determines the lookback period used for the DMI calculation.
• ADX Smoothing: Adjusts the smoothing period for the ADX line.
• ADX Threshold: Sets the minimum ADX value required for a signal to be valid, helping filter out signals in low-volatility environments.

FAQ

How do I interpret the circles on the chart?

The circles represent momentum shifts where the directional indicators (+DI/-DI) are diverging while the ADX has reached a local peak. Green represents bullish momentum and red represents bearish momentum.

Why are some signals filtered out?

Signals are filtered out if the ADX value is below the user-defined threshold or if the EMA 9 and EMA 14 do not align with the signal direction. This is designed to improve signal quality.

How can I get access to this tool?

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