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
2nd Peak and Early Detection
The 2nd peak actually has 2 sensitivity values: 2nd peak left and 2nd peak right. The reason for that is to allow for a mix of detecting peaks that have advanced enough in one direction but to get an early alert without having to wait for the full pattern to form (see the images below for an example.
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)
More