Divergence Advanced Settings

Divergence Indicator

Divergence occurs when there is a discrepancy between the price movement of an asset and the behavior of a technical indicator, such as the RSI, MACD, or Stochastic Oscillator. Divergence can often signal a potential trend reversal, providing traders with valuable insights into possible changes in market direction.

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How It Works:

Divergence typically happens when the price of an asset and an indicator (momentum-based, such as RSI, MACD, etc.) are not moving in the same direction. There are two main types of divergence:

• Regular Divergence: This occurs when the price makes new highs or lows, but the indicator fails to confirm the move. It’s often used as a sign of potential trend reversal.

• Hidden Divergence: This is when the price forms a higher low (in an uptrend) or a lower high (in a downtrend), but the indicator shows a lower low (uptrend) or higher high (downtrend), suggesting the trend will likely continue.

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Divergence Indicator Settings:

Here are the key settings and what they mean for the Divergence Indicator:

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Fast Length:

• Definition: The Fast Length refers to the number of periods used for the fast-moving calculation of the momentum indicator (e.g., the fast-moving average for RSI, MACD, etc.).

• How It Works:

  • Shorter Fast Length settings result in a more reactive and sensitive indicator that responds quickly to price changes.

  • Longer Fast Length settings smooth out the indicator, which reduces sensitivity but can filter out some of the market noise.

• Use Case: Traders may use a shorter Fast Length for intraday trading or quick trend identification and a longer one for more reliable but slower signals.

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Slow Length:

• Definition: The Slow Length parameter is used for the slow-moving calculation of the momentum indicator. It typically refers to the slower-moving average or period for the calculation.

• How It Works:

  • Longer Slow Length values result in smoother indicators that are less sensitive to price fluctuations.

  • Shorter Slow Length values make the indicator more responsive to quick changes in price.

• Use Case: The Slow Length is often used to create a balance with the Fast Length for determining the strength and direction of trends more accurately.

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Plot Look Back Left / Plot Look Back Right:

• Definition: These settings determine how many periods the indicator looks back (to the left) and how many periods it projects forward (to the right) when identifying divergence.

• How It Works:

  • Plot Look Back Left defines the number of historical periods the indicator will consider when analyzing price action and the corresponding indicator values.

  • Plot Look Back Right defines how many future periods the indicator will consider for potential divergences and trend predictions.

• Use Case: Adjusting these settings allows traders to control how far into the past and future the divergence analysis is applied.

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Max of Lookback Range / Min of Lookback Range:

• Definition: These parameters set the maximum and minimum length of the lookback period in terms of price data for identifying divergences.

• How It Works:

  • The Max of Lookback Range restricts how far back in time the indicator looks for divergences.

  • The Min of Lookback Range ensures that only certain patterns are captured within the defined time frame.

• Use Case: Useful for traders looking to focus on divergence signals from specific price patterns within a fixed window of time, potentially reducing noise.

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Use Bullish / Bearish:

• Definition: These settings allow the user to toggle whether bullish or bearish divergences should be highlighted.

• How It Works:

  • Bullish Divergence: Occurs when the price is making lower lows, but the indicator is making higher lows, signaling potential upward reversal.

  • Bearish Divergence: Occurs when the price is making higher highs, but the indicator is making lower highs, signaling potential downward reversal.

• Use Case: Traders use these settings to focus on specific types of divergence that align with their trade bias. Bullish for potential buys and Bearish for potential sells.

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Use Hidden Bullish / Hidden Bearish:

• Definition: These settings allow the user to toggle hidden bullish or hidden bearish divergences. Hidden divergences often signal trend continuation rather than a reversal.

• How It Works:

  • Hidden Bullish Divergence: Occurs when the price makes higher lows, but the indicator makes lower lows, suggesting that the uptrend will likely continue.

  • Hidden Bearish Divergence: Occurs when the price makes lower highs, but the indicator makes higher highs, suggesting that the downtrend will likely continue.

• Use Case: These signals can be helpful in confirming the strength of an ongoing trend.

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Bullish Signals Lookback Number of Candles / Bearish Signals Lookback Number of Candles:

• Definition: These settings control how many candles (or bars) the indicator should use to look back for confirming bullish or bearish divergence signals.

• How It Works:

  • Bullish Signals Lookback Number of Candles: This defines how many past candles are analyzed to find bullish divergence.

  • Bearish Signals Lookback Number of Candles: This defines how many past candles are analyzed to find bearish divergence.

• Use Case: These settings allow the trader to control the number of recent candles that are considered when identifying potential divergences, giving more or less focus to shorter-term or longer-term price movements.

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Summary:

The Divergence Indicator helps traders spot potential trend reversals or trend continuations based on discrepancies between price action and momentum indicators. By adjusting parameters such as Fast Length, Slow Length, Lookback Range, and `Bullish/Bearish toggles, traders can fine-tune the indicator to fit their trading strategy and preferred market conditions. The inclusion of Hidden Divergence and Lookback Settings further enhances its flexibility, allowing traders to optimize the indicator for different time frames and market dynamics.