How to calculate positive and negative divergences

Optuma Forums Optuma Scripting How to calculate positive and negative divergences

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    Darren
    Darren
    • Topics: 20
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    Divergences between the trend of prices and an indicator are often used as a signal for a change in price trend:

    Positive (Bullish) Divergence: prices are falling but the indicator is rising

    Negative (Bearish) Divergence: prices are rising but the indicator is falling

    This example compares RSI values at their highs with the closing price of the stock at the time of those highs. If the RSI high is lower than the previous high but the price is higher between those points then it gives a signal for negative divergence.

    This example uses a 10 bar pivot for the RSI(14) ie there are at least 10 lower days either side (this can be increased – the higher the number the more important the peak).

    //Negative RSI divergence
    RSI1 = RSI(BARS=14);
    //calculate 10 pivot RSI high
    P1 = PIVOT(RSI1, MIN=10, TYPE=High);
    //get value of the RSI peak
    V1 = VALUEWHEN(RSI1, P1 <> 0);
    //Is RSI high < previous>?
    Sig1 = V1 < V1[1];
    //get stock value at RSI peak
    V2 = VALUEWHEN(Close(), P1 <> 0);
    //Is stock price higher than at previous RSI peak?
    Sig2 = V2 > V2[1];
    //Show when both conditions are true
    Sig1 and Sig2

    For positive divergence:

    //Positive RSI Divergence
    RSI1 = RSI(BARS=14);
    P1 = PIVOT(RSI1, MIN=10, TYPE=Low);
    V1 = VALUEWHEN(RSI1, P1 <> 0);
    Sig1 = V1 > V1[1];
    V2 = VALUEWHEN(Close(), P1 <> 0);
    Sig2 = V2 < V2[1];
    Sig1 and Sig2

    As in this example, use the above in two separate Show View tools and drag one over the other to display the signals:

    Capture

    At point B the RSI peak is lower than A, but the share price is higher (negative divergence), whereas at point D the RSI low is higher than at C but the share price is lower (positive divergence).

     

     

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