Stefan Krecher: Jeddingen Divergence

The Stefan Krecher: Jeddingen Divergence indicator identifies potential trend reversals by detecting discrepancies between price momentum and the underlying price trend using linear regression curves.

Usage

The Stefan Krecher: Jeddingen Divergence tool is used to spot early signs of exhaustion in a current trend. It visualizes a linear regression curve on the chart and highlights specific segments where price action and momentum move in opposite directions.

• Bullish Divergence: Indicated by a thick green line on the linear regression curve. This occurs when the price (smoothed by linear regression) is falling while the calculated momentum is rising, suggesting a potential upward reversal.
• Bearish Divergence: Indicated by a thick red line on the linear regression curve. This occurs when the price is rising while momentum is falling, suggesting a potential downward reversal.

For higher probability setups, users often combine these signals with secondary oscillators:

• Sell Setup: A bearish divergence appearing while the RSI is in overbought territory and a MACD crossover has occurred.
• Buy Setup: A bullish divergence appearing while the RSI is in oversold territory, ideally paired with a bullish MACD crossover.

Details

The indicator is based on the Jeddingen Divergence methodology. Unlike standard divergences that compare price peaks/troughs to oscillator peaks/troughs, this script compares the direction of two distinct linear regression outputs over a specific window of candles.

The script calculates:

1. A linear regression curve of the price to determine the smoothed trend direction.
2. The momentum of that price series.
3. A comparison of whether the price curve is rising/falling relative to whether the momentum is rising/falling over a user-defined number of bars.

Settings

• Number of candles that need to diverge: Sets the lookback period (3 to 10 bars) over which the rising or falling condition must be met to trigger a divergence.
• Price related linear regression length: Determines the period used to calculate the main linear regression curve plotted on the chart.
• Momentum length: Determines the period used to calculate the momentum value that is compared against the price trend.

FAQ

How do I interpret the colored lines on the chart? A thick green line segment indicates a bullish divergence (price down, momentum up), while a thick red line segment indicates a bearish divergence (price up, momentum down). The thin blue line represents the standard linear regression curve.

Is this indicator a standalone signal? While it identifies momentum shifts, it is most effective when used in conjunction with other technical analysis tools like RSI or MACD to confirm overbought or oversold conditions.

How can I access the Stefan Krecher: Jeddingen Divergence? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.