ADX divergence indicator with alert for NinjaTrader 8.

Please note that this purchase is a 1-Year license. About License renew.

Divergence is very common and useful in technical analysis. It indicates possible reversal signals when there are discrepancies between ADX and price movement.

What ADX Divergence Actually Looks Like

Unlike oscillators, ADX measures trend strength (0-100). Divergence forms when:

• Price makes a new extreme (higher high or lower low),

• But the ADX line shows weakening momentum (lower peak or higher trough).

Two Core Signals:

1. Bearish ADX Divergence:

   • Price: Makes a Higher High (HH)

   • ADX Line: Prints a Lower High (LH)
     → Fading uptrend strength → Potential reversal down.

2. Bullish ADX Divergence:

   • Price: Makes a Lower Low (LL)

   • ADX Line: Prints a Higher Low (HL)
     → Fading downtrend strength → Potential reversal up. 
     
     Price pushes to new highs/lows, but ADX fails to confirm — signaling internal weakness.

Why It’s Useful: The Trading Edge

1. Flags "Hollow" Breakouts

• When price breaks resistance but ADX is declining → Weak volume/conviction.

• Example: Stock breaks $100 to $102 (HH), but ADX drops from 40 → 32.
  → High probability of fakeout → Short opportunity.

2. Identifies Exhaustion in Parabolic Moves

• In euphoric pumps (e.g., meme stocks, crypto), price surges but ADX rolls over → Smart money exiting.

• Action: Take profits or tighten stops.

3. Confirms Reversions in Mean-Reversion Strategies

• ADX divergence at key support/resistance adds conviction:

  • Bearish divergence at resistance = Strong sell signal.

  • Bullish divergence at support = Strong buy signal.

4. Filters False Trend Signals

• A "trend" with declining ADX is unreliable → Avoid trend-following entries.

Real Trading Example: Bearish ADX Divergence

Chart: Tesla (TSLA) Daily | Context: Post-earnings rally

• Price Action:

  • Peak 1: $250 (ADX = 48)

  • Peak 2: $265 (HH)

• ADX Action:

  • At Peak 2: ADX = 38 (LH)

• Outcome:

  • Price reversed to $230 within 5 days.

• Trade Setup:

  1. Short entry at $260 (below Peak 2)

  2. Stop-loss: $270

  3. Target: $235 (prior support)

How to Trade ADX Divergence

Step 1: Spot the Divergence

• Use at least 5-10 candles between price peaks/troughs.

• Validate with DI lines:

  • Bearish divergence: +DI declining, -DI rising.

  • Bullish divergence: -DI declining, +DI rising.

Step 2: Add Confirmation

• Price Action:

  • Bearish: Rejection candles at resistance (shooting star, gravestone doji).

  • Bullish: Reversal candles at support (hammer, bullish engulfing).

• Volume: Declining volume on new price extreme → Weak participation.

• Trendlines: Break of short-term trendline.

Step 3: Entry & Risk Management

• Entry:

  • Bearish: After first red candle closes below divergence peak.

  • Bullish: After first green candle closes above divergence trough.

• Stop-Loss:

  • Beyond the divergence extreme (e.g., above HH for shorts).

• Target:

  • Nearest support/resistance or 1:2 risk-reward.

Limitations & Critical Notes

1. Not for Choppy Markets:

   • ADX < 20 → Ignore divergence (low reliability).

2. Strong Trends Can Ignore Divergence:

   • In institutional-driven moves (e.g., FOMO rallies), ADX divergence may resolve with sideways consolidation instead of reversal.

3. Combine with +DI/-DI:

   • Declining ADX + -DI crossing above +DI = High-confidence reversal signal.

4. Timeframe Sensitivity:

   • Best on daily/weekly charts; noisy on intraday.

ADX Divergence vs. Oscillator Divergence

Key Takeaway

ADX divergence is a stealthy trend-exhaustion detector. Its power lies in:

• Exposing "empty" price moves lacking institutional conviction,

• Signaling reversals at key technical levels,

• Preventing entries into weakening trends.

Use it as a filter, not a standalone signal. When combined with price action and DI lines, it becomes a sophisticated tool for spotting major turning points — especially in overextended markets.

"ADX divergence doesn’t shout — it whispers. Listen when it speaks at extremes."
 

The definition of divergence is when price and indicator move in different directions

for instance, when price is in uptrend and reaches a higher high where the indicator is in downtrend.

Features and inputs:

1. Instant signal on current (last) bar, no repaint.
2. Alert when a signal appears.
3. Select different sound alert files.
4. Enable to show lines between Highs and Lows.
5. Please note: it doesn't work in Renko chart.
6. Market Analyzer with alert. You can add new sound files to your NT8\sounds directory.
7. Wait 1 bar: enable this new feature will display the signal 1 bar later in order to check the trend direction of both price and related indicator, otherwise, it will display the signal on current bar. We consider this feature as a 1 bar confirmation for divergence signals.

There will be a 'H' drawn under a hidden divergence.