Divergence Detector

The Divergence Detector indicator automatically identifies and labels regular and hidden divergences between price action and momentum oscillators to highlight potential trend reversals or continuations.

Usage

The Divergence Detector identifies discrepancies between price and technical indicators (RSI or OBV). When price makes a lower low but the indicator makes a higher low, a bullish divergence is plotted. Conversely, when price makes a higher high but the indicator makes a lower high, a bearish divergence is plotted.

The indicator uses labels to signify the "strength" or "degree" of the detected divergence:

• Minimal/Moderate: Standard labels indicating emerging divergence.
• Strong (!): Divergence with significant separation.
• Very Strong (!!): High-confidence divergence patterns.
• Extreme (!!!): Highly significant divergence likely to precede a sharp move.

Users can toggle between regular and hidden divergences and customize the source indicators to fit their specific trading strategy.

Details

The script calculates divergence by comparing price pivots to indicator pivots over a specified lookback period. It includes a unique "Degree" calculation that weights the relative distance between price and indicator levels to determine the strength of the signal.

Additionally, the "Exclude if broken trendline" feature ensures that the divergence remains valid by checking if intermediate price action has breached the hypothetical trendline connecting the two pivots. This helps filter out "noisy" signals where the momentum has already shifted before the pivot was fully formed.

Settings

Indicator

• Indicator: Select the underlying indicator used for divergence detection (Options: RSI, OBV).
• Length: The lookback period for the selected indicator (e.g., RSI length).

Divergence Params

• Show bullish/bearish: Toggles the visibility of bullish and bearish signals.
• Show hidden: Enables or disables the detection of hidden divergence patterns.
• Previous pivot bars before/after: Sets the number of bars required to confirm the first (historical) pivot point.
• Next (divergent) pivot bars before/after: Sets the number of bars required to confirm the second (current) pivot point. Reducing the "after" value can result in faster detection but may increase false signals.
• Look back bars: The maximum number of bars the script will search to find a matching historical pivot.
• Bullish/Bearish divergence price source: Choose which price data (High, Low, Close, etc.) to use for calculating pivots.
• Exclude if broken trendline: If enabled, the script invalidates signals where price crossed the trendline between the two divergence points.

FAQ

How do I use the Divergence Detector?

You can apply the tool to your chart and monitor for labels appearing above or below price pivots. The labels ("!", "!!", "!!!") will indicate the calculated strength of the divergence.

What indicators are supported?

Currently, the tool supports RSI (Relative Strength Index) and OBV (On-Balance Volume).

How can I get access?

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