Ichimoku Oscillator With Divergences [ChartPrime]

11 oct 2023

The Ichimoku Oscillator is a trading indicator designed to streamline the interpretation of Ichimoku clouds. It aims to refine and condense the complexities of the Chikou (the lag line), presenting its implications in real-time through an oscillator format, beneficial for those familiar with Ichimoku components but to have a new interpretation of their indicators.



The basics of an Ichimoku:

• Conversion Line (Tenkan-Sen): It represents a midpoint of the highest and lowest prices over a specific period, usually 9 periods, reflecting short-term price movements.
  
• Base Line (Kijun-Sen): It acts similarly to the Conversion Line but over a longer period, typically 26 periods, representing medium-term price movements.
  
• Leading Span A & B (Kumo): Span A is the average of the Conversion Line and Base Line, and Span B is the midpoint of the highest and lowest prices over a usually longer period, typically 52 periods. Their interaction denotes trend direction, and the cloud color changes depending on whether Span A is above or below Span B, indicating bullish or bearish market conditions, respectively.
  
• Lagging Span (Chikou Span): It is the current closing price plotted 26 periods behind, assisting in confirming the trend direction and potential momentum.
  

Advantage of an Oscillator:
Utilizing the oscillator format allows traders to interpret market dynamics more efficiently by visualizing the momentum and trend strength in a bounded range, enabling quick assessments of overbought or oversold conditions. Creating this oscillator provides multiple advantageous; particularly in sideway markets, helping to identify potential reversal points and offering insights on market entries and exits. When building this oscillator we've put a focus on unique interpretations such as overbought and sold areas and divergences; otherwise not found in traditional Ichimoku techniques. It is important to note these divergences are naturally not 100% real time.

When the oscillator turns green; the market is in an uptrend, red for downtrend and yellow for a transitioning market. The center line and the inner most cloud represent a balanced market state.


Key Features & Input Parameters:

• Signal Source: Allows the selection of the price data source for signal generation, such as closing prices, and it’s the foundational parameter upon which the oscillator functions.
  
• Normalization Settings: Users can select the normalization mode (“All”, “Window”, or “Disabled”), influencing how the oscillator scales its values. When enabled, it will scale from 100 to -100, allowing the user to understand better the relative positioning of price data.
  
• Smoothing: This indicator offers advanced smoothing features, with options for additional smoothing, allowing traders to adjust the signal's sensitivity to price movements.
  
• Kumo & Chikou Visibility: Traders can customize the visibility settings of Kumo and Chikou, tailoring the display of each component to their preference, enabling a cleaner and more intuitive view of market conditions.
  
• Color Coding: Each component and condition, like bullish or bearish states, can be color-coded, providing visual cues to enhance the interpretability of market trends and states.
  
• Color on Conversion: The oscillator provides an option to color the signal based on the crossover of the conversion and base lines.
  
• Divergence: The oscillator can detect and highlight regular and hidden bullish and bearish divergences between the signal and price, aiding traders in identifying potential trend reversals or continuations.
  

Alerts:
The list of inbuilt alerts are provided below:

• Inside Cloud: The signal line is inside the cloud.
  
• Up Out of Cloud: The signal line crossed above the cloud.
  
• Down Out of Cloud: The signal line crossed below the cloud.
  
• Future Kumo Cross Bullish: The future Kumo lines have crossed in a bullish manner.
  
• Future Kumo Cross Bearish: The future Kumo lines have crossed in a bearish manner.
  
• Current Kumo Cross Bullish: The current Kumo lines have crossed in a bullish manner.
  
• Current Kumo Cross Bearish: The current Kumo lines have crossed in a bearish manner.
  
• Conversion Base Bullish: The conversion line crossed above the base line.
  
• Conversion Base Bearish: The conversion line crossed below the base line.
  
• Signal Bullish on Conversion Base: The signal line crossed above the maximum of conversion and base lines.
  
• Signal Bearish on Conversion Base: The signal line crossed below the minimum of conversion and base lines.
  
• Chikou Bullish: The Chikou line crossed above zero.
  
• Chikou Bearish: The Chikou line crossed below zero.
  
• Signal Over Max: The signal line crossed above the max level.
  
• Signal Over High: The signal line crossed above the high level.
  
• Signal Under Min: The signal line crossed below the min level.
  
• Signal Under Low: The signal line crossed below the low level.
  
• Chikou Over Max: The Chikou line crossed above the max level.
  
• Chikou Over High: The Chikou line crossed above the high level.
  
• Chikou Under Min: The Chikou line crossed below the min level.
  
• Chikou Under Low: The Chikou line crossed below the low level.
  
• Signal Crossover MA: The signal line crossed over the moving average.
  
• Signal Crossunder MA: The signal line crossed under the moving average.
  
• Regular Bullish Divergence: Regular bullish divergence detected.
  
• Hidden Bullish Divergence: Hidden bullish divergence detected.
  
• Regular Bearish Divergence: Regular bearish divergence detected.
  
• Hidden Bearish Divergence: Hidden bearish divergence detected.
  
• Bounce off of Kumo Up: Bullish Bounce off of Kumo.
  
• Bounce off of Kumo Down: Bearish Bounce off of Kumo.
  

By providing a cohesive visualization of the Ichimoku elements and market momentum within a bounded range, this oscillator is a unique tool and insight into markets.