Divergence detection algorithm

April 29th, 2010, 04:37 AM

there we go ....
pic is from this morning
divers are made with MacD in this example.
the code is in MT4.
folks say MT4 code is very near to NT-script - so its no complete other world.

it show "normal + hidden" diver as solid + dashed lines.

in realtime it works great - there is no repaint + nothing "evil" in it

the arrows /signals come up with the FIRST Bar that shows a turning MacD -- not 3 Bars later or so ! so its realy useful and not just "nice in review" like so much other things.

have a look at it if you can extract the calculations - i would love to see this for NT !

BTW -- you get MT4 incl feeds for free at alpari for example .... or at any forexbrokers

April 29th, 2010, 09:12 AM

Thanks Cunparis for the thread idea and max-td for the mt4 code. I'm wondering if anyone has compared the MT4 code with the Spotter codes posted by Fattails?

Or has anyone done some successful porting from MT4 to NT? I'd be willing to give it a try but I'm looking for resources to understand things like this one:

Code

//+------------------------------------------------------------------+
//| Custom indicator deinitialization function |
//+------------------------------------------------------------------+
int deinit()
{
for(int i = ObjectsTotal() - 1; i >= 0; i--)
{
string label = ObjectName(i);
if(StringSubstr(label, 0, 19) != "MACD_DivergenceLine")
continue;
ObjectDelete(label); 
}
return(0);
}

in other words, how is "de" initialization compared to NT initialization? If anyone has some online tutorials for porting, please post links.
Thanks,
kz

April 29th, 2010, 09:32 AM

hi zeller!

have a look here - its infos about the D3-spotter - D3 didnt really look for divers/swings in the indicator at all but manages the line-plotting not too bad i think.

Quick question about the D3Spotter divergence indicator

Hi.

I had a quick question about the D3Spotter indicator. Do the dots/arrows occur 1 bar before current bar or do they occur as current bar in NT.

My replay data does not seem to be working...don't know why.

Thank you for your help.

about the other one i know not much - but it did not give out such good+clear results/signals like the MT4-indis

April 29th, 2010, 10:52 AM

Thanks, Max,

I noticed while going through an NT support thread that sefstrat and eDanny seem to have an excellent handle on converting MT4 indicators.

If they would be so kind to teach us "junior programmers" how to port MT4, that would be greatly appreciated.

kz

April 29th, 2010, 11:47 AM

Some time ago I started working with a couple of guys that wanted a strategy to enter a trade when we get MACD divergence off a Bollinger Band bounce. I annotated some charts to help clarify what they were looking for. See attached.

The trick is when to take the 1st peak, and when to start looking for a second but divergent peak in both data series. For example, in the MACD examples, after the first peak in the histogram, we decided to not start looking for a new but higher swing low in the MACD histogram unless the MACD unless we got at least 3 higher readings after the first peak. Some thought we should cross all the way above the zero line and then back below it before waiting for the 2nd swing lower,while others thought that a cross above the zero line should reset the search for a 2nd peak. Also, regarding price, it wasn't clear if we are comparing lower lows or lower closes.

So there is a lot of discretion in measuring divergence and how you read the 2 data series that you are comparing. These examples that I share are some of the challenges one has to consider.

April 29th, 2010, 12:14 PM

Most trading systems based on divergences have a negative expectancy. The left chart is a good example. MACD produced a divergence, not because the trend slowed down, but because of the Baskerville effect: a moving average also barks if something drops out at the beginning of the period.

By pure luck price entered a consolidation and then continued its prior trend. Every short term consolidation of a trend produces a divergence, so you would not want to trade all of them.

The right chart shows that a trade entry based on MACD divergence came way too early. What about adding a filter that you will only take divergences after a trendline break ?

April 29th, 2010, 12:25 PM

Fat Tails

Most trading systems based on divergences have a negative expectancy. The left chart is a good example. MACD produced a divergence, not because the trend slowed down, but because of the Baskerville effect: a moving average also barks if something drops out at the beginning of the period.

By pure luck price entered a consolidation and then continued its prior trend. Every short term consolidation of a trend produces a divergence, so you would not want to trade all of them.

The right chart shows that a trade entry based on MACD divergence came way too early. What about adding a filter that you will only take divergences after a trendline break ?

Which is why I think the requirement that the divergence occur happen off of a Bollinger band bounce potentially increases the success of reversal.

April 29th, 2010, 12:40 PM

If you have a strong trend, this will be typically near a Bollinger Band. I have often observed that a trend weakens - i.e. reduces its slope - several times before it reverses. See daily chart of ES below.

April 29th, 2010, 12:51 PM

Or let us have a look at price action of ES during the last hour:

April 29th, 2010, 01:01 PM

Fat Tails

If you have a strong trend, this will be typically near a Bollinger Band. I have often observed that a trend weakens - i.e. reduces its slope - several times before it reverses. See daily chart of ES below.

I attached an updated chart with notes...

Also, reversals often can have targets 2-6x larger than stops so you don't need to be right more than 50% of the time.

Divergence detection algorithm

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Divergence detection algorithm