MACD divergences from price
The MACD divergences spot difference between the price and the MACD histogram on recent lower low and highest high.
This indicator use the ZeroLag version of the MACD indicator that can be found on the library here: http://www.prorealcode.com/prorealtime-indicators/zerolag-macd/
Highest and Lowest point of the MACD are saved for divergence spotting only if the signal line of the MACD has crossed its histogram.
This indicator code is not the one of the MACD divergence indicator already embedded in the platform. It may have some differences of results between these two. This one can be used for any automated trading strategy development. The code is adapted from the RSI divergence HK-LISSE one.
// DIVERGENCES ZeroLag MACD adapted from HK-LISSE RSI divergences code
//MACD periods
short = 12
long = 26
signal = 9
//-----------
EMAshort1 = exponentialaverage[short](close)
EMAshort2 = exponentialaverage[short](EMAshort1)
DifferenceShort = EMAshort1 - EMAshort2
ZeroLagShort = EMAshort1 + DifferenceShort
EMAlong1 = exponentialaverage[long](close)
EMAlong2 = exponentialaverage[long](EMAlong1)
DifferenceLong = EMAlong1 - EMAlong2
ZeroLagLong = EMAlong1 + DifferenceLong
ZeroLagMACD = ZeroLagShort - ZeroLagLong
signal1=ExponentialAverage[signal](ZEROLAGMACD)
signal2=ExponentialAverage[signal](signal1)
DIFFERENCE2=signal1-signal2
SignalMACD=signal1+DIFFERENCE2
x = ZeroLagMACD
y = SignalMACD
// BEARISH DIVERGENCES MACD
hi=max(hi,x)
hico=max(hico,max(high,high[1]))
if x crosses under y then
sto2b=sto1b
sto1b=hi
hi=0
p3b=p1b
p2b=max(p1b,hico1)
p1b=max(highest[3](high),hico)
if p2b=p1b then
p2b=max(p3b,p4b)
endif
hico=0
hico1=0
endif
if x<y then
p4b=hico1
hico1=max(hico1,high)
endif
if p1b>p2b and sto1b<sto2b and x crosses under y and x<x[1] then
signB= -2
else
signB= 0
endif
// BULLISH MACD DIVERGENCES
lo=min(lo,x)
lowco=min(lowco,min(low,low[1]))
if x CROSSES OVER y then
sto2h=sto1h
sto1h=lo
lo=100
p3h=p1h
p2h=min(p1h,lowco1)
p1h=min(lowest[3](low),lowco)
if p2h=p1h then
p2h=min(p3h,p4h)
endif
lowco=100000
lowco1=100000
endif
if x>y then
p4h=lowco1
lowco1=min(lowco1,low)
endif
if p1h<p2h and sto1h > sto2h and x crosses over y and x>x[1] then
signH= 2
else
signH= 0
endif
////////////////////////////////////////////////
RETURN signH as "Bullish MACD Divergence", signB as "Bearish MACD Divergence" , 0 as " zero "
Comments
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Hi Nicolas, >>This indicator code is not the one of the MACD divergence indicator already embedded in the platform... What's the name of the indicator embedded in the system?
Hello Nicolas, in my opinion a divergence is only valid if between two low points or two high poins, the MACD histogram cross its centerline. Moreover, the bigger the difference between the two low/high points, the more powerfull is the divergence. Taking that into account, I don't see real divergence in the chart you used as example. What do you think?
This is a pretty useful indicator. I know how to identify divergences, but this definitely simplifies the task. I found that it is best used as an early warning signal, and then you open a trade on the next signal (on another indicator of your choice) confirming this one. e.g. every time if I had bought or sold based on this signal, I had a low chance of profit or breakeven. But if on this bullish signal, I waited for the next relative swing low to open my trade, I had about an 80-90% chance of profit or at least breakeven, even when it signaled countertrend during a larger opposite trend.
I'm a little new to PRC, so maybe some other newbies will appreciate a minor tip: binary indicators like this one are visually easier when you set to Histogram and set the bullish color to green, bearish to red.
I think I've found it. My questions: 1. Do you have the source code? 2. The following is a screenshot. It seems sometimes it hasn't recognized the divergence?