Divergence is very common and useful in technical analysis. It indicates possible reversal signals when there are discrepancies between ADX and price movement.
The definition of divergence is when price and indicator move in different direction，
for instance, when price is in uptrend and reaches a higher high where the indicator is in downtrend.
Update Notes: new features and inputs are added.
The chart below is when "wait 1 bar" disabled.
The same chart below is with "wait 1 bar" enabled.
The "wait 1 bar" feature will be able to filter out unnecessary signals before the price trend direction reverse.
By using different swing length, the divergence indicator will be able to detect from short trend to long trend divergence signals.(please check this page for more info about what is swing point, swing high and swing low.)
The chart below used swing length=12, it's a relatively mid term setting based on number of bars on chart, not based on time or date range. If it's a daily chart, the span will be around 3 months (80 to 90 bars).
The same chart below used swing length=5, it's a relatively short term setting.
The chart below is the extension of the chart above, but we used different SwingLength input, therefore, the signals are different.
Update Notes: added hidden divergence type.
A hidden divergence is where price has a higher LOW but the indicator has a relative lower value, as shown in the pic below.
There will be a 'H' drawn under a hidden bullish divergence.
A 'R' drawn under a regular bullish divergence.
There will be a 'H' drawn under a hidden bearish divergence.
A 'R' drawn under a regular bearish divergence.
What is ADX Triple Divergence?
The concept of triple divergence is intuitional, if there are three continueous divergences in a row between current High and previous Peak then it will trigger a signal.
More signals is not necessary a bad thing, but a signal (Triple Divergence) is confirmed via short, mid and long terms could be more solid.
It doesn't necessarily mean the Triple Divergence is definitely better than the normal version, they detect signals from different angles.
Please note that the number of signals is not controlled by this indicator, since it doesn't have the power to influence the market.
There is no guaranty how many signals you will see in a certain period of time. If it concerns you please purchase the 1-month trial first.
You can add new sound files to your NT8\sounds directory.
It also comes with a Market Analyzer which makes it possible to track signals within any timeframe. The input "Range" is used to check if there was a signal within the given number of bars.
You can add more than one column as different timeframes with different settings.
The following chart is a bullish ADX triple divergence.
A bearish ADX triple divergence is shown in the chart below
Why Triple Divergence? Is it better than normal divergence?
I have seen many divergence indicators on different platforms but they only check the divergence in one of the three terms, short-term, mid-term or long-term. Regular divergence indicator will not exam all three terms at the same time, but Triple Divergence is capable of completing the task.
Sometimes there are too many divergence appear in a short range for the normal divergence indicator.
Copyright @ 2020 Patternsmart - All rights reserved
This website is for educational and informational purposes only and should not be considered a solicitation to buy or sell a futures contract or make any other type of investment decision. It's not recommended to use any single indicator as sole evaluation criteria. The companies and services listed on this website are not to be considered a recommendation and it is the reader's responsibility to evaluate any product, service, or company. patternsmart is not responsible for the accuracy or content of any product, service or company linked to on this website.
Futures trading contains substantial risk and is not for every investor.Please read the following risk disclosure before considering the trading of this product: Futures Risk Disclosure. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.
Trading stocks, options, futures and forex involves speculation, and the risk of loss can be substantial.Investor must consider all relevant risk factors, including their own personal financial situation, before trading. Trading foreign exchange on margin carries a high level of risk, as well as its own unique risk factors. Forex investments are subject to counter-party risk, as there is no central clearing organization for these transactions. Please read the following risk disclosure before considering the trading of this product: Forex Risk Disclosure. Spreads, Straddles, and other multiple-leg option strategies can entail substantial transaction costs, including multiple commissions, which may impact any potential return. Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Prior to trading options, you should carefully read Characteristics and Risks of Standardized Options.
patternsmart.com will not be held liable for the loss of money or any damage caused from relying on the information on this site. Any investment decision you make in your self-directed account is solely your responsibility.