Divergence Strength Oscillator

The Divergence Strength Oscillator indicator tracks the cumulative strength of divergences across multiple technical indicators to identify potential market reversals before they are fully confirmed by pivot points. By aggregating data from various sources like RSI, MACD, and OBV, it provides a real-time sentiment gauge that highlights emerging trend exhaustion.

Usage

The indicator is designed to provide an early look at potential divergence formations. Unlike traditional divergence detectors that wait for a "pivot after" to confirm a signal, this tool calculates strength on any bar that could potentially serve as a pivot.

• Positive Values (Green Histogram): Indicate net bullish divergence strength. Higher peaks suggest stronger convergence of bullish signals across multiple oscillators.
• Negative Values (Red Histogram): Indicate net bearish divergence strength. Lower troughs suggest stronger bearish pressure across the monitored indicators.
• Signal Lines: Horizontal lines are placed at +4 and -4. Crossing these levels can suggest significant divergence accumulation, which may precede a reversal.

This tool is most effective when used as a confluence filter rather than a standalone buy/sell signal. Users should look for high oscillator readings as a prompt to evaluate other price action context or support/resistance levels.

Details

The divergence strength is calculated by summing individual indicator scores. Each score is derived from two components:

1. Price Magnitude (|ΔPrice|): The change in price over the divergence period.
2. Indicator Magnitude (|ΔIndicator|): The change in the oscillator's value.

To ensure equitable comparison between indicators with different scales (e.g., RSI vs. OBV), the values are normalized using standard deviation: |ΔIndicator| = |indicator_value_1 - indicator_value_2| / (2 * StDev(indicator_series, 100))

The "Net Divergence" tracks the balance between bullish and bearish forces, allowing traders to see which direction currently holds more "divergence weight."

Settings

Divergence Params

• Previous pivot bars before/after: Sets the minimum number of bars required to confirm the historical pivot used for comparison.
• Next (divergent) pivot bars before: Determines the required leading bars for the current potential pivot.
• Lookback bars / Lookback pivots: Defines the search window for finding previous peaks or troughs.
• Regular/Hidden weight: Adjusts the influence of regular vs. hidden divergences on the total score.
• Δ price/indicator weight: Balances the importance of price movement vs. oscillator movement in the strength calculation.

Indicator

• RSI, OBV, MACD, STOCH, CCI, MFI, AO: Toggle individual indicators on or off.
• Weight: Assigns a multiplier to each specific indicator, allowing you to prioritize those you find more reliable.

FAQ

How do I use this without it repainting?

The oscillator calculates values based on potential pivots. While the histogram value for the current bar may fluctuate until the bar closes, it is designed to show the "building" strength of a divergence as early as possible.

Which indicators are most reliable?

This depends on the asset. The default weights are balanced, but for high-volume assets, many traders find RSI and MACD weights to be particularly significant.

How can I access Divergence Strength Oscillator?

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