User Guide – Metatrader Divergence Indicator

User Guide – Metatrader Divergence Indicator

The following release notes are for the Metatrader MT4 Divergence Indicator Premium.

Quick Start

This indicator will detect technical divergences. Drag and drop the indicator onto the required chart. The default setting will use the MACD oscillator. Use the sensitivity setting to filter weaker divergence case – where the market is less overbought or oversold.

Figure 1: Detecting MACD divergence
Figure 1: Detecting MACD divergence © forexop

The indicator can be set to use: MACD, RSI, Moving Average of Oscillators (OSMA), Stochastic, and the CCI (commodity channel index). All of these oscillators produce their own distinct divergence events. For an understanding of oscillator divergence trading please see here.

Input Settings

Input setting Comment
Oscillator type MACD=0, OSMA=1, RSI=2, CCI=3, Stochastic=4
Sensitivity Overbought/oversold position over the sampling period > (Sensitivity %)
Fast moving average Fast average in the oscillator
Slow moving average Slow average to use in the oscillator
Detection bars Wait bars to confirm divergence. Higher more accurate but creates time lag (see below).
Minimum bars for divergence event Minimum bars for the divergence
Maximum bars for divergence event Maximum bars for the divergence
Sampling window for overbought/oversold check Check sensitivity over this many bars
Line color Color setting
Text color buys Color setting
Text color sells Color setting
Signal color Color setting
Invert signal Reverse the signal for contrarian trading
Output trade signal Generate a trade signal on buy/sell events
Send terminal alerts? Alert on any new divergence event (buy/sell)
Send email alerts? Send an email on divergence event (through Metatrader terminal)
Send mobile push notifications? Send text alert on divergence event (through Metatrader terminal)
Min. interval between alerts (seconds) Alert no more than this many seconds (prevents rapid alerts)
Max. history bars (zero for all) How many history bars should the indicator analyze?
Create chart objects? Display the divergence markers on the main window of the chart

Output signal

Mode/Signal Name Description
0 Oscillator The value of the oscillator’s main line (graph histogram)
1 Line The value of the oscillator’s main line (graph line)
2 Buy signal Output is <0 at Buy event empty otherwise
3 Sell signal Output is >0 at Sell event empty otherwise

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.

The buy/sell signal is in proportion to the strength of the divergence. It’s set according to the average overbought/oversold level over the recent history. Higher values mean that the oscillator is at a more overbought position. Lower values mean the oscillator is at a more oversold level.

What about Redraws?

People often ask about redraws. A redraw happens when an indicator draws something on the chart in the past. In some cases redraws can’t be avoided because the interpretation of a chart pattern takes more than one bar to complete. This is the case with divergence. To help understand this, take a look at Figure 3 below.

Figure 2: When the detection point occurs.
Figure 2: When the detection point occurs. © forexop

The divergence pattern here happens over seventeen bars. This pattern is shown between the dark blue lines. Further to this, the indicator uses an extra two bars to confirm that 1) the pattern is indeed a divergence, and 2) that the pattern is complete.

The detection point for the complete pattern is marked with the green arrow. The arrows are always placed in real time. So these are the time points at which the trade signal and alert is actually made.

The number of detection bars (lag) can be set in the configuration, but it has to be at least one bar.

USDCAD H1 Chart Example

The labels are displayed in the main chart and the trade signal (arrows) is shown in the lower indicator window. As explained above, the arrow is the actual detection point for the entire pattern and is always made in real time. So the arrows show which time points you would actually trade.

Figure 3: The trade signal
Figure 3: The trade signal © forexop

GBPUSD M1 Chart Example

Three alert types can be configured. With the alert box, a popup appears in the terminal window whenever a trade signal appears. You can also use email alerts, or a mobile alerts. Email alerts and mobile alerts will use the settings in your Metatrader terminal (see Tools->Options->Notifications).

Figure 4: Trade signal with pop up alert box
Figure 4: Trade signal with pop up alert box © forexop

More Resources

Video: https://www.youtube.com/watch?v=YYlPFNzwix8
http://forexop.com/products/mt4indicators/7247/
http://forexop.com/strategy/divergence-trade/