WaveTrend Divergences, Candle Colouring and TP Signal

The WaveTrend Divergences, Candle Colouring and TP Signal indicator is a momentum-based oscillator designed to track trend strength, identify price-momentum divergences, and highlight potential take-profit zones using integrated Bollinger Bands.

Usage

The WaveTrend tool can be used to identify trend direction, reversals, and exhaustion points.

• Trend Direction: Market sentiment is visualized through the relationship between the WT Line and the signal line. A WT Line above the signal line indicates bullish momentum, while a position below indicates bearish momentum.
• Candle Colouring: The script dynamically changes the color of price bars based on crossovers. Bullish crossovers turn candles green (by default), while bearish crossovers turn them red, providing immediate visual confirmation on the price chart.
• Divergence Signals: The indicator automatically detects Regular and "Plus" divergences. "Plus" signals (marked with a +) are considered stronger as they originate from extreme levels (above +60 or below -60), indicating potential reversals from overbought or oversold conditions.
• Take-Profit (TP) Signals: Using Bollinger Bands applied to the oscillator, the tool plots shapes on the chart when the WT Line exceeds its volatility bands. These markers suggest that momentum is overstretched and a retracement or mean reversion may be imminent.

Details

The indicator is constructed using an EMA-smoothed momentum calculation. The WT Line is derived from the difference between price and its EMA, normalized by volatility. This results in an oscillator that fluctuates between defined overbought and oversold levels.

Divergences are calculated by comparing local price pivots with oscillator pivots. A Bullish Divergence occurs when price makes a lower low while the oscillator makes a higher low. Conversely, a Bearish Divergence occurs when price makes a higher high while the oscillator makes a lower high. The Bollinger Band component applies a standard deviation envelope to the oscillator itself, rather than price, to capture momentum extremes.

Settings

• Channel Length: Sets the lookback period for the initial EMA and volatility calculations.
• Average Length: Determines the smoothing factor for the primary WT Line.
• Divergence: Toggles the detection and display of regular and plus divergences.
• Candle Colours: Enables or disables the dynamic trend-based bar coloring on the chart.
• Potential TP Signals: Toggles the display of Bollinger Band-based exit signals.
• Bull/Bear/Neutral Colours: Allows for visual customization of the oscillator, candles, and signals.

FAQ

How do I use the "Plus" divergences?

"Plus" divergences are specific signals where the first pivot occurs at an extreme level (outside the +/- 60 range). These are used by traders to identify high-probability reversal zones where momentum is already exhausted.

What do the crosses on the price chart represent?

The crosses are "Potential TP Signals." They appear when the WaveTrend oscillator crosses outside its Bollinger Bands, suggesting that the current move is overextended and a pullback may occur.

How can I access WaveTrend Divergences, Candle Colouring and TP Signal?

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