Stefan Krecher: Jeddingen Divergence
The main idea is to identify a divergence between momentum and price movement. E.g. if the momentum is rising but price is going down - this is what we call a divergence. The divergence will be calculated by comparing the direction of the linear regression curve of the price with the linear regression curve of momentum.
A bearish divergence can be identified by a thick red line, a bullish divergence by a green line.
When there is a divergence, it is likeley that the current trend will change it's direction.
Looking at the chart, there are three divergences that need to get interpreted:
1) bearish divergence, RSI is overbought but MACD does not clearly indicate a trend change. Right after the divergence, price and momentum are going up. No clear signal for a sell trade
2) bearish divergence, RSI still overbought, MACD histogram peaked, MACD crossed the signal line, price and momentum are going down. Very clear constellation for a sell trade.
3) two bullish diverences, RSI is oversold, MACD crossover near the end of the second divergence, price and momentum started rising. Good constellation for a buy trade. Could act as exit signal for the beforementioned sell trade.
More information on the Jeddingen Divergence is available here: www.forexpython.com/strategy
A bearish divergence can be identified by a thick red line, a bullish divergence by a green line.
When there is a divergence, it is likeley that the current trend will change it's direction.
Looking at the chart, there are three divergences that need to get interpreted:
1) bearish divergence, RSI is overbought but MACD does not clearly indicate a trend change. Right after the divergence, price and momentum are going up. No clear signal for a sell trade
2) bearish divergence, RSI still overbought, MACD histogram peaked, MACD crossed the signal line, price and momentum are going down. Very clear constellation for a sell trade.
3) two bullish diverences, RSI is oversold, MACD crossover near the end of the second divergence, price and momentum started rising. Good constellation for a buy trade. Could act as exit signal for the beforementioned sell trade.
More information on the Jeddingen Divergence is available here: www.forexpython.com/strategy
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//@version=2
study(title="Stefan Krecher: Jeddingen Divergence", shorttitle="Jeddingen Divergence", overlay=true)
candles = input(title="Number of candles that need to diverge", type=integer, defval=5, minval=3, maxval=10)
linregPrice = input(title="price related linear regression length", type=integer, defval=20, minval=5, maxval=50)
momLength = input(title="momentum length", type=integer, defval=10, minval=2, maxval=50)
jeddingen(series) => ((falling(series, candles)) and (rising(mom(series, momLength),candles))) or ((rising(series, candles)) and (falling(mom(series, momLength),candles)))
srcDiv = close
lrDiv = linreg(srcDiv, linregPrice, 0)
lrDivColor =if(jeddingen(lrDiv) == true)
rising(lrDiv, candles) ? red:green
else
na
plot(lrDiv)
plot(lrDiv, color=lrDivColor, linewidth=4)