How Does it Work?
The indicator locates divergences; that is situations where there’s a temporary disconnect between an oscillator such as MACD and the market price. In typical cases the MACD (or whichever oscillator is chosen) is moving against the price over a short period. These create trading opportunities.
Divergence is a favorite strategy among technical traders. This is because of its clean signal and ability to locate high probability market turning points. Figure 1 below shows an example.
This tool uses a dynamic sampling method so that low probability divergence trades are filtered out in the early stages. The remainders are checked against a number of other criteria to maximize the success rate.
Buy signals are generated only where the market is deeply oversold and sell signals where the market is deeply overbought. These combined with situations where momentum is slowing are often seen where a market correction is building.
The indicator makes trade suggestions which you can act on or ignore. The trade suggestions are displayed on the chart. But if you don’t want to watch the screen all day you can receive instant alerts by:
- SMS – Using push notifications
- Pop up alerts
The indicator doesn’t place trades for you. However, if you are looking for a fully automated system the template provided will let you easily hook it up to your own expert advisor.
The indicator has a number of configurations to allow it to work with any instrument, timeframe or trading system. The most important of these is the choice of oscillator. A selector will set the oscillator from the following choices:
- MACD – Moving Average Convergence Divergence
- RSI – Relative Strength Index
- Stochastic – Stochastic oscillator
- OsMA – Moving Average of Oscillator
- CCI – Commodity Channel Index
These oscillators are all built into Metatrader 4 so there aren’t any custom tools to install.
For a more information please see the technical guide.