This script finds Tops when RSI is in overbought area or Bottoms when RSI is in oversold area and checks the divergence between them. it checks divergence at tops/bottoms after RSI exited from OB/OS areas.
You can change overbought / oversold levels. You can limit the time that RSI is in OB/OS area with the option "Max Number of Bars in OB/OS" you can set the minimum/maximum distances between Tops/Bottoms with the options "Min Number of Bars between Tops/Bottoms" and "Max Number of Bars between Topss/Bottoms" and you can set the color and line widths as you wish.
These tops or bottom must be sequential, means there mustn't be another top while checking tops or bottom while checking bottoms between them.
in next example you can see valid and invalid bottoms:
After you got signal then you better use Stop Order, a few pips higher than the high of colored candle for long positions, (vise versa in short positions). so you may escape from traps. ("Stop order" is filled when the price reached a pre-specified price. for example the price is now 10.0 and you set Buy Stop Order at 11.0 then if price reaches 11.0 then your buy order get filled. you can put stoploss a few pips lower than the low of colored candle or you can use ATR to decice stoploss level. how you wish)
For example in following screenshot you can see that buy stop order was not filled and you didn't take long position.
@LonesomeTheBlue Once again Thank You for sharing this. One doubt, does it work for small time frame like say 5min, 15min, 30min, if Yes, does the next candle confirmation work (a few pips Higher than the colored candle) ?
LonesomeTheBlue
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@sourayb, it can work on all time frames, as written above, you should use stop order. time frame depends on your strategy and trading style. also as you should know only one indicator may be be enough to make a desicion, you should confirm the singals by using other indicators
@LonesomeTheBlue thanks for this!
Please can I set an alert for this?
A_Traders_Edge
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So wait...am I assuming correctly that this is showing exaggerated bull/bear divergences? Have been searching for this as there are few out there if so...and of course it would come from you (again...if so)!!! Thanks for your time and amazing work regardless. You always make me so #ContentedTheCheerful. Maybe we should get together and be just .....eh (so-so) that way I can just call you..."TheBlue". I like that more.
kurtsmock
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That's just beautifully written. =)
I really like the "maygoup" "maygodown" variables =P
tjsherlock
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@kurtsmock, Agreed. Very well written, easy to follow.