Stochastic Divergence indicator gives possible reversal signals when there are discrepancies between Stochastic and price movement.
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For instance, an uptrend Negative Divergence occurs when price reaches a higher high, but the indicator fails to follow. In a downtrend, positive divergence occurs when price reaches a lower low, yet the indicator does not reach a lower low.
Features:
- Alert: provide both sound and message alert whenever a divergence is found. You can turn it on or off.
- Length 1&2: Define the range of bars which are used to calculate the recent High and previous High, as shown in picture.
- Stoch _mode: Choose “Upper” to only plot signal arrows on price chart.
Choose “lower” it will plot as a Stochastic indicator with divergence signals. - Percent: The difference between High1 and High2, as shown in picture.
- Stoch_Percent: The difference between Stochastic 1 and Stochastic 2, as shown in picture.
- All Parameters of Stochastic : Adjust the inputs of Stochastic indicator.
How to use:
The purpose of divergence indicator is to point when price trend are moving into opposite direction.
Negative divergence:
First of all, we need to locate the recent High1 and its Stochastic 1 value within the given range(lenght1).
Secondly, we find the previous High2 and its Stochastic 2 value within the given range(lenght2).
Then we compare the ratio of these 2 Highs and Stochastic values to determine if they meet the percentage you set.
For example, if you set “percent=3”, then it will check if High1 is greater than High2 by 3%. If you set “Stoch_percent=5” then it will check if Stochastic 1 is less than Stochastic 2 by 5%.
If both percent conditions are met, there will be a red arrow pointing downward.
Positive divergence:
The indicator will find the recent Low1 and its Stochastic 1 value within the given range(lenght1).
And then it will find the previous Low2 and its Stochastic 2 value within the given range(lenght2).
If you set “percent=1”, then it will check if Low1 is less than Low2 by 1%. If you set “Stoch_percent=5” then it will check if Stochastic 1 is greater than Stochastic 2 by 5%.
If both percent conditions are met, there will be a green arrow pointing upward.
Please note: in order to plot this indicator on both price chart and lower chart, you need to load it in two places. And set Stochastic _mode to “Upper” in Price chart and Stoch _mode to “lower” in Lower chart. As shown in the following picture.
If you want the same signals on both charts, all parameters have to be consistent on both sides.
This indicator works in any time period and applicable for all securities(Stocks, Futures, Forex, Options,ETF, etc.).
When you use this indicator in minute chart, it’s better to set “percent” less than 1, otherwise, lots of signals will be filtered.
If you want to add any feature to this indicator, please send us a Customization request.
