Enhanced OBV Divergences

The Enhanced OBV Divergences indicator provides a comprehensive framework for identifying regular and hidden divergences between price action and On Balance Volume (OBV) to anticipate trend reversals and continuations.

Usage

The Enhanced OBV Divergences tool is used to detect discrepancies between price trends and volume flow. Regular bullish and bearish divergences are highlighted to signal potential market reversals, while hidden divergences serve as indicators of trend persistence.

Traders can utilize the indicator to:

• Identify Accumulation/Distribution: Use the OBV line to see if volume is confirming price moves or if the trend is losing conviction.
• Confirm Trend Direction: Use the optional Moving Average (MA) to smooth the OBV data and visualize the primary momentum direction.
• Monitor Real-Time Data: Reference the dynamic statistics label for values such as the Rate of Percentage Change (RPC) and the distance (in bars) since the last detected divergence.
• Execution: Add the script to a chart and adjust pivot lookback periods to align with specific trading timeframes.

Details

The script is built on the core principle that volume precedes price. It calculates On Balance Volume by cumulatively adding volume on up-days and subtracting it on down-days. The script then applies a pivot-point detection algorithm to both the price and the OBV oscillator.

Divergences are identified when the price makes a higher high or lower low that is not confirmed by the OBV. The inclusion of the Rate of Percentage Change (RPC) adds a secondary layer of analysis, measuring the momentum of the volume flow itself relative to its average.

Settings

• Lookback Right / Left: Sets the number of bars required to confirm a pivot high or low in the oscillator.
• RPC Period: Determines the window used to calculate the Rate of Percentage Change of the OBV.
• MA Period: Defines the length of the Simple Moving Average applied to the OBV line.
• Divergence Visibility: Boolean toggles (Bullish, Hidden Bullish, Bearish, Hidden Bearish) to control which signals are plotted on the chart.
• Moving Average: Toggles the visibility of the OBV smoothing line.

FAQ

How do I use the statistics label?

The floating label provides real-time metrics including the current OBV value, the RPC percentage, and the number of bars elapsed since the last bullish or bearish divergence occurred.

What is the difference between Regular and Hidden divergences?

Regular divergences typically suggest a trend reversal (e.g., price makes a lower low while OBV makes a higher low), whereas hidden divergences suggest trend continuation (e.g., price makes a higher low while OBV makes a lower low).

How can I access this tool?

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