MACD + Divergence + Line

The MACD + Divergence + Line indicator provides a comprehensive trend-following and momentum toolkit by combining a customizable MACD oscillator with automated detection for four types of price-momentum divergences. It serves as a visual aid for identifying trend reversals and continuations through color-coded histograms and signal line analysis.

Usage

The Usage section describes how the script can be used to interpret market momentum and potential exhaustion points.

MACD Histogram and Signal Lines

The indicator calculates the difference between two moving averages (fast and slow) to create the MACD line. Users can toggle the visibility of the MACD and Signal lines to focus purely on the histogram or use them to identify classic crossovers. The histogram features a four-color gradient system:

• Bright Green: Oscillator is above zero and increasing (strong bullish momentum).
• Dull Green: Oscillator is above zero and decreasing (weakening bullish momentum).
• Bright Red: Oscillator is below zero and decreasing (strong bearish momentum).
• Dull Red: Oscillator is below zero and increasing (weakening bearish momentum).

Divergence Detection

The script automatically scans for discrepancies between price action and the MACD oscillator:

• Regular Bullish/Bearish: Indicates potential trend reversals. A regular bullish divergence occurs when price makes a lower low while the MACD makes a higher low.
• Hidden Bullish/Bearish: Indicates potential trend continuation. A hidden bullish divergence occurs when price makes a higher low while the MACD makes a lower low.

Details

The indicator allows for granular control over the calculation methods, offering both Simple Moving Average (SMA) and Exponential Moving Average (EMA) options for both the oscillator and the signal line smoothing. The divergence logic is based on pivot points defined by the lookback settings; a "Pivot Lookback Right" of 5 means a divergence is confirmed 5 bars after the actual peak or trough has occurred to ensure data validity.

Settings

• Fast Length: The period for the shorter-term moving average.
• Slow Length: The period for the longer-term moving average.
• Source: The price data used for calculations (default is close).
• Signal Smoothing: The period used to calculate the Signal line from the MACD.
• Oscillator MA Type: Select between SMA or EMA for the MACD calculation.
• Signal Line MA Type: Select between SMA or EMA for the Signal line smoothing.
• Show Sma: Toggles the visibility of the MACD and Signal lines.
• Pivot Lookback Right/Left: Determines the number of bars required to confirm a pivot high or low for divergence detection.
• Max/Min of Lookback Range: Defines the bar range window where the script searches for previous pivots to compare against the current one.
• Plot Bullish/Bearish/Hidden: Toggles the visibility of specific divergence types on the chart.

FAQ

How do I identify a trend reversal using this tool?

Look for Regular Divergence labels (Bull or Bear). When price reaches a new extreme but the MACD histogram fails to follow, it suggests momentum is slowing down, often preceding a reversal.

Can I change the moving average type?

Yes, the settings menu allows you to independently switch both the MACD components and the Signal line between SMA and EMA to suit different trading styles or asset classes.

How do I get access to MACD + Divergence + Line?

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