Price Divergence Indicator
Nov 16, 2022
The Price Divergence Indicator tool identifies discrepancies between the price action of the current chart and a selected external symbol to spot potential trend reversals or continuations.
Usage
The Price Divergence Indicator is designed to find "catch up" opportunities between correlated assets. When two normally synchronized instruments deviate at confirmed highs or lows, the indicator flags this as a divergence.
Key usage scenarios include:
- Correlated Indices: Comparing SPX vs. NDQ or UK100 vs. NDQ to find broad market leads/lags.
- Crypto Pairs: Analyzing BTC vs. ETH or BTC vs. DXY (inverse correlation).
- Stock Peer Groups: Comparing MSFT vs. AMZN or individual stocks against their sector indices.
Users can choose any TradingView symbol and timeframe for the comparison. It is generally recommended to use a comparison timeframe equal to or longer than the current chart timeframe to maintain data integrity.
Details
The indicator calculates divergences between confirmed pivot points (peaks and troughs) of the primary chart and the comparison source.
- Regular Divergence: Occurs when price makes a higher high/lower low that is not confirmed by the comparison source, suggesting an exhausted trend and potential reversal.
- Hidden Divergence: Occurs when the comparison source makes a higher high/lower low that is not confirmed by the price, suggesting trend continuation.
The detection relies on a "Lookback Right" mechanism, meaning signals are confirmed after a specific number of bars have passed to ensure a pivot is valid.
Settings
- Comparison Source: The symbol used to compare against the current chart.
- Timeframe: The timeframe of the comparison source data.
- Pivot Lookback Right: The number of bars to the right of a pivot required for confirmation. Lower values are faster but less reliable; higher values are more stable but lag more.
- Pivot Lookback Left: The number of bars to the left required to define a pivot point.
- Max/Min of Lookback Range: Defines the search window (in bars) to find previous pivots for comparison.
- Plotting Toggles: Options to enable/disable Regular Bullish, Hidden Bullish, Regular Bearish, and Hidden Bearish signals.
- Plot When Alerts Fire: Displays triangles at the top or bottom of the chart when a divergence condition is met.
FAQ
How do I access Price Divergence Indicator?
You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.
Why do signals appear a few bars late?
The indicator uses pivot points which require a "Lookback Right" confirmation. A signal can only be confirmed once the price has moved away from the peak or trough for the number of bars specified in the settings.
What assets work best with this indicator?
Assets with high historical correlation work best, such as BTC and ETH, or the SPX and NDQ indices. Using it on unrelated assets may produce unreliable signals.
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