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A very common request I receive for custom indicators and strategies is to include divergence. While divergence is easy for the eyes to see, it can be quite difficult to define in terms that are programmable. The Divergence Indicator for NinjaTrader utilizes a sophisticated algorithm to detect divergence, and eliminates some shortcomings of typical divergence indicators. It can be calculated using ANY indicator that you have in NinjaTrader (ex. RSI, MACD, Stochastic, or any custom indicators). Additionally, the Divergence Indicator contains a powerful Analysis Window that allows you to find which types of divergence are the most profitable.
What is Divergence?
The simple definition of divergence is when price is moving in the opposite direction of a given indicator. Typically divergence is calculated using an oscillator type of indicator. Some common indicators used to detect divergence include the MACD, RSI, and Stochastic indicators. The image below shows an example of divergence using the MACD indicator, which is the blue line at the bottom of the chart. The indicator has drawn lines on the price chart connecting lower highs in price. Similarly, the indicator has drawn a line on the MACD chart connecting higher highs. Since price is making lower highs, and the indicator is making higher highs, we have divergence!
Here is another example of divergence, where price is making higher lows and the indicator is making lower lows.
There are 4 possible scenarios that we can use to find divergence:
- Price is making higher highs while indicator is making lower highs
- Price is making lower lows while indicator is making higher lows
- Price is making lower highs while indicator is making higher highs
- Price is making higher lows while indicator is making lower lows
The Divergence Indicator for NinjaTrader will detect all types of divergence listed above, and plot color coded lines to allow you to easily identify different types of divergence.
The Analysis Window of the Divergence Indicator will tell you where the market typically moves after the divergences are detected. Unlike a typical strategy performance report, the Analysis window shows you how far the market moved in either direction as opposed to how much money was made or lost on the trade. The user is allowed to pick the maximum number of bars after the divergence pattern to analyze (the Bars In Trade parameter in the image above). The Analysis Window will then calculate the minimum, maximum, and ending deviation from the entry price. In other words, it will tell you the maximum profit and loss that the trade could have achieved. Green numbers in the Analysis Window indicate that the market moved up the specified amount, while red numbers indicate the market moved down the specified amount. These numbers are very useful in determining where to place stop loss and profit target orders on your trades.
The Analysis Window also contains a page to view graphs as well as a detailed list of divergences found by the indicator. This list can easily be copy and pasted in to Excel to perform further analysis.
- Typical Divergence Indicator’s have a delay of several bars before identifying a divergence pattern. The delay in this indicator is limited to 1 bar!
- Will calculate based on ANY indicator you have in NinjaTrader (ex. RSI, MACD, or any custom indicator)
- Filters allow you to easily identify which types of divergences generate the best trading opportunities
- Email and Audio alert notification of new divergence signals
- Customizable Plots
- And More…
No other products compare when it comes to detecting and analyzing divergence patterns in NinjaTrader!