User Guide – Cross Market Divergence Indicator

User Guide – Cross Market Divergence Indicator

The following release notes are for the Cross Market Divergence Indicator.

Quick Setup

Place the divergence indicator onto the required chart and in the settings box enter the symbol of the market to compare – e.g AUDJPY. Enter the symbol exactly as it appears in the MarketWatch. Important: If the markets are inverse to one another (one rises when the other falls) the “inverse” setting should be used. The indicator will output a warning message if the markets are inversely correlated but the inverse setting is not switched on.

If too many or two few divergences appear, adjust the settings below accordingly. If no output is shown, make sure that the Metatrader history exists for both charts on that time period and that the compare symbol is entered correctly.

Market divergence indicator, showing output markers
Market divergence indicator, showing output markers © forexop

Settings to adjust for different time-frames and markets:

1 “Check divergence over this many bars”
2 “Correlation period”
3 “Correlation multiplier”

Alerts can be created and these will notify of any new buy/sell events that appear on the chart. Mobile and email alerts will only be sent if you have this option set up in MetaTrader.

Output signal

The indicator will output a trade signal according to the input settings. This will output values for the correlation between the markets. The divergence output will be on whenever the two markets are diverging beyond their average limits.

Signal/Mode Description
0 Short period correlation coefficient
1 Long period correlation coefficient
2 Divergence:
 +1=Buy main symbol/sell compare symbol,
 -1=Sell main symbol/buy compare symbol

Open Metatrader’s data window (CTRL+D) to show the signal values. You can hover with the mouse cursor over any point to display the value in the data window.

Data window showing signal outputs
Data window showing signal outputs © forexop

The signals are set to the predefined “empty values” setting when no marker is shown.

If the inverse setting is on, the buy/sell signal for the compare market will refer to the inverted symbol. For example, if the compare symbol is GOLD/USD inverted (USD/GOLD), then a buy signal means sell GOLD, and a sell signal means buy GOLD.

Input Settings

Input setting Comment
Enter symbol to compare Compare this symbol with the main chart symbol
Invert the compare symbol? Invert the compare symbol (yes/no)?
Correlation period The short correlation period in chart bars
Multiplier for longer period line The long correlation period (multiple of short period)
Histogram color Color setting
Line color main symbol Color setting
Line color compare symbol Color setting
Line color for upper leg Color setting
Line color for lower leg Color setting
Color for buy arrow Color setting
Color for buy arrow Color setting
Check divergence over this many bars The duration in bars over which correlation events are checked
Create alerts? Alert type on new divergence events: Terminal, mobile, Email
Output trade signal? Output the buy/sell arrows onto the chart (yes/no)?

The only mandatory setting is the compare symbol. Enter the compare symbol exactly as it appears in the MarketWatch window. The other settings have defaults which should be suitable for most charts. Adjust the settings accordingly for smaller or larger timeframes where needed.

Check there is correlation between the markets in the lower window. The indicator will only give meaningful results were a strong and consistent correlation exists between the two markets. The correlation can be either negative or positive. With a negative correlation, switch the “Invert” setting on.

Indicator input settings
Indicator input settings © forexop

Display

The indicator will display the text and arrows on the chart if this setting is switched on. The labels are set according to the initial window size. If you resize the chart or switch chart or timeframes, and the labels appear out of alignment, just refresh the indicator by opening the settings box.

For further information please see the product page and articles on the website which describe various divergence strategies.

Resources

Video: https://www.youtube.com/watch?v=6yl0aobFwmw
Technical divergence: http://forexop.com/strategy/divergence-trade/
Technical divergence indicator: http://forexop.com/products/mt4indicators/7247/