Divergence (RTX)

The Divergence RTX indicator quantifies divergence with a numerical value between two data series using various methods. Each data series may consistent of either price data, cumulative delta filtered, filtered cumulative delta, or any other indicator available in Investor/RT. Also, each data source may be built off the data of the charted symbol or any alternative symbol.  With these options, users may measure divergence between Price and Cumulative Data, Price and ANY Indicator, Price of one symbol vs Price of any other symbol, Indicator value one symbol vs Indicator value of another symbol, Cum Delta of one symbol vs Cum Delta of another symbol, etc.  And the Cumulative Delta can be filtered by size (only trades above 10 lots, only trades below 15 lots, etc).   In measuring divergence, we seek to identify strength in one data series relative to another data series at any given time. The indicator provides a variety of methods for computing divergence: Retracement, Percent Change, High to High, and Low to Low. A Minimum and Maximum Lookback period allow the user to control the series or window of past bars which will be compared to each bar in the divergence calculation. A Fresh Start option prevents divergence from looking back into the prior session.

Presentation

Divergence Prefs

  • Method/Lookback/Fractal Bars Read more
  • Fresh Start Fresh Start prevents the divergence indicator from comparing any bar to bars in the prior session when computing results.
  • Require Diverging Slopes This option is available for methods High to High and Low to Low and requires the slope of the respective data series to be on opposing sides of zero (one positive, one negative).
  • Data 1 / Data 2 Each data series has the folowoing options: Price High/Low, Custom Indicator, and Cumulative Delta. Price High/Low provides the price data of the charted symbol (high/low/close). The Custom Indicator option provides the user access to any indicator in Investor/RT. The Cumulative Delta provides the bar data (high/low/close) of the Volume Breakdown Indicator setup as Delta Bars with Accumulate All Data. The Cumulative Delta option has a Filter > option which filters the cumulate delta bars to only trades above the specified size.
  • Alternate Symbol Each data series has a choice for an Alternate Symbol.  When this option is checked, the data series will build off the charted symbol.  When checked, the user supplied symbol will be used to compute the data series.
  • Smooth A smoothing option allows the user to apply a simple moving average to the results if desired.
  • Draw As Divergence will typical be drawn as a Histogram or possible a dotted line, but the full array of drawing options are provided for displaying the results.
  • Ref Lines +/- Reference Lines will be drawn at the specified level both above and below zero. Specify 25 to draw reference lines at +25 and -25. This value should be set to levels of significance depending on the method and data series specified above.
  • Label With Bars Back When this options is checked, each Divergence value will be labelled with the number of bars back of the bar which was used in comparison with current bar in the computation of the divergence result for that bar.
  • Method The explanation below of calculation methods should be consumed in combination with the video on the Divergence indicator to get a more visual explanation of the computation methods.

    DIVERGENCE = D1RS - D2RS
    D1RS = Relative Strength of Data Series 1
    D2RS = Relative Strength of Data Series 2

    The difference in divergence calculations comes down to the difference in computing D1RS and D2RS depending on which method is selected. These differences are detailed below and involve these variables:

    MAXHI1 = Highest High of Data Series 1 over Max Period
    MAXLO1 = Lowest Low of Data Series 1 over Max Period
    RANGE1 = Range of Price of Data Series 1 over Max Period (MAXHI1 - MINLO1)
    CL1 = Closing Price of each bar of Data Series 1
    MAXHI2 = Highest High of Data Series 2 over Max Period
    MAXLO2 = Lowest Low of Data Series 2 over Max Period
    RANGE2 = Range of Price of Data Series 2 over Max Period (MAXHI1 - MINLO1)
    CL2 = Closing Price of each bar of Data Series 2

    For all methods, range is used to normalize each data series into a percent change value that is comparable among data series as the data series involved rarely if every share a common scale. For example, while Cumulative Delta may move 100,000, price may only move 2.25. To convert these change values into comparable data we must divide by a recent range to provide as a normalized percent change move.

    Divergence Calculation Method

    • Retracement Method

      D1RS = 100 * (CL1 - MINLO1) / RANGE1
      D2RS = 100 * (CL2 - MINLO2) / RANGE1

    • Percent Change

      Method:The Percent Change method is designed to compare the extreme (high/low) prices of each bar, with the extreme prices of a range of bars in the past (determined by Min and Max Lookback), and find and return the divergence with the highest magnitude.

      These 4 values are computed for each value of x from x=MinPeriod to x=MaxPeriod:

      D1RS_UP = 100 * (HI1 - LO1.x) / RANGE1
      D2RS_UP = 100 * (HI2 - LO2.x) / RANGE2
      DIVERGENCE_UP - D1RS_UP - D2RS_UP
      D1RS_DN = 100 * (LO1 - HI1.x) / RANGE1
      D2RS_DN = 100 * (LO2 - HI2.x) / RANGE2
      DIVERGENCE_DN - D1RS_DN - D2RS_DN

      And the divergence result with the highest magnitude is presented as the result for the bar.

    • High to High

      Method: The High to High method computes divergence values only on bars which form relative highs. These relative highs are determined using the Fractal method. The user supplies the fractal bars. A 5 bar up fractal has a high above or equal to the high of the 2 bars before and after it (5 bars total). A 7 bar up fractal has a high above or equal to the highs of the 3 bars before and after it (7 bars total). The high of up fractal bars is compared with the high of any up fractal bar in our prior bar window (determined by Max Lookback and Min Lookback), computes a divergence for each, and returns the divergence with the largest magnitude.

      So for each fractal bar, where a prior fractal bars is x bars back (where x must be between Min Lookback and Max Lookback)...

      D1RS = 100 * (HI1 - HI1.x) / RANGE1
      D2RS = 100 * (HI2 - HI2.x) / RANGE2
      DIVERGENCE.x = D1RS - D2RS

      and the DIVERGENCE with the highest magnitude is what results as the divergence value for that up fractal bar.

    • Low to Low

      Method: The Low to Low method computes divergence values only on bars which form relative lows. These relative lows are determined using the Fractal method. The user supplies the fractal bars. A 5 bar down fractal has a low below or equal to the lows of the 2 bars before and after it (5 bars total). A 7 down bar down fractal has a low below or equal to the lows of the 3 bars before and after it (7 bars total). The low of down fractal bars is compared with the low of any down fractal bar in our prior bar window (determined by Max Lookback and Min Lookback), computes a divergence for each, and returns the divergence with the largest magnitude.

      So for each fractal bar, where a prior fractal bars is x bars back (where x must be between Min Lookback and Max Lookback)...

      D1RS = 100 * (LO1 - LO1.x) / RANGE1
      D2RS = 100 * (LO2 - LO2.x) / RANGE2
      DIVERGENCE.x = D1RS - D2RS

      and the DIVERGENCE with the highest magnitude is what results as the divergence value for that down fractal bar.

DivergenceRTX (@ES#)
Divergence (RTX). This chart was uploaded by Investor/RT 12.6.1 showing symbol: @ES#.

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Divergence (RTX) Introduction
Divergence (RTX) Introduction

The Divergence RTX indicator quantifies divergence with a numerical value between two data...

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