Divergence V2

12 jun 2023

This indicator is based on the concept of divergence. I recommend that you find out and study about this yourself as the concept of divergence will not be explained in depth in this description.

This indicator will show divergences between the asset price and the RSI oscillator. The indicator will look for divergent points between the rising highs and falling lows of the asset; and the rising lows and falling highs of the RSI.

The trend of the asset tends to follow the behavior of the oscillator when a divergence occurs. So if we find a divergence between the two, the price of the asset is likely to follow the trend of the oscillator.

This indicator looks for these types of divergences and will show (based on the RSI) if there is a bullish or bearish divergence.

If it is bullish, it will show a line joining those points in green and if it is bearish in red. In addition, it will show a label where you can see the number of occurrences that have been found from a certain point to another.

Note: this indicator can be complemented with the “Divergence RSI V2” indicator which is also found in my library.

Settings
Backtesting Bars: is the number of bars back that the indicator will check. No more than 1000 is recommended as this will slow down the search.

Tolerance: [0-3] number of times a divergent line can cross a bar. If you place 0, no bar can be crossed by a diverging line.

Min Bars To detect: will only search for divergences (or lines) that have the minimum number of bars selected in this option. Default option is 30.

Min Bars To detect: it will only search for divergences (or lines) that have the maximum number of bars selected in this option. Default option is 100.

Source Highs: [close] The high points will be based on the close of each bar. You can use [high] as another alternative.

Source Lows: [close] The low points will be based on the close of each bar. You can use [low] as another alternative.

Use squeeze parameter: only look for divergences (bullish or bearish) at times when such an indicator is in favor of the trend or coincides with the corresponding RSI divergence.