Overview

The study works by detecting divergence between swings on the chart and swings on an oscillator. Swings in this context are synonymous to peaks or pivots.

The image to the right highlights different types of swings

A few definitions:

The 1st peak refers to the swing that is on the left hand side of the chart.
The 2nd peak refers to the swing that is on the right.
A divergence is when the peaks of the price go in a different direction from the oscillator. Price increasing Vs. oscillator decreasing, or vice versa.
A bearish divergence (shown in red) looks for a series of diverging "swing high"s.
A bullish divergence (shown in green) looks for a series of diverging "swing low"s.

A line is drawn between the two swings once a divergence is confirmed.

Sensitivity Settings

Swings are defined as bars that peak higher/lower than all their neighbors. The more bars beside the peak that make a lower high/higher low, the more significant the swing.

The Swing Sensitivity input dictates how many bars need to make a lower high/higher low than the peak for it to be considered for divergence. An example with Swing Sensitivity = 3 is shown in blue on the image to the right.

Sensitivity also has an impact on the responsiveness of the study. A lower sensitivity value means that swings will be detected faster, as there needs to be less bars on the right of the 2nd peak until a swing is registered. The colored arrow indicated on what bar a divergence was detected.

Early Detection

Because the 2nd peak's right side sensitivity controls how quickly a peak is detected, the Trigger Sensitivity input controls just that. Lower values means sooner detection of divergence, but more false positives on short swings.

Divergence Lookback

Divergence is detected between two swings. The study is limited in how many peaks it can look back through for divergence through the Divergence Lookback Number of Peaks input. If there are multiple peaks that divert in the lookback it selects one according to the Divergence Lookback Use Nearest/Furthest Peak input.

Filters

Filter for Bars/Oscillator Crossing Divergence Line

Inputs

Input name	Description
Oscillator	Reference to the subgraph we want to detect divergence with
Draw Divergence Lines On	Select whether to draw the actual divergence lines on the main price panel and/or the oscillator region
Oscillator Graph Region	The graph region of the oscillator
Sensitivity 1st Peak	Number of bars sensitivity for the left side swing (see more below)
Sensitivity 2nd Peak Left	Number of bars sensitivity on the left hand side of the right peak
Sensitivity 2nd Peak Right	Number of bars sensitivity on the right hand side of the right peak
On Bar Close	Should the divergence be detected on bar close or intrabar
Arrow Offset	Visual offset in ticks of the arrow from the bar
Mode	Select between Regular and Hidden Divergence

Subgraphs

Subgraph	Description
Bullish Divergence Detected	An up arrow by default, below the bar
Bearish Divergence Detected	A down arrow by default, above the bar

Note that the detection uses swing points. That means that the right side swing must form in order for the divergence to be drawn. Depending the "Sensitivity 2nd Peak Right" setting, there will be that much delay in detection because we have to wait for the swing to form (Its a classic trade off between waiting for a full price pattern to form vs. earlier detection with patterns that have not fully formed). The arrows will appear on the bar where the divergence was detected. If you look at a historical chart, the arrow shows you when you would have been alerted to the divergence.

Performance and Tuning

To deal with long load times and sluggishness

Reduce the number of days loaded
Turn the drawings off

Setting up Alerts

Using the SC built-in alerts, add the alert condition below to the study Alerts Tab

Alert condition: or(SG1<>0, SG2<>0)

T29 Divergence V3 Study