Ultimate Oscillator + Divergences

12 авг. 2022 г.

Ultimate Oscillator (UO) + Divergences + Alerts + Lookback periods.

This version of the Ultimate Oscillator adds the following 3 additional features to the stock UO by Tradingview:

- Optional divergence lines drawn directly onto the oscillator.
- Configurable alerts to notify you when divergences occur.
- Configurable lookback periods to fine tune the divergences drawn in order to suit different trading styles and timeframes.

This indicator adds additional features onto the stock Ultimate Oscillator by Tradingview, whose core calculations remain unchanged. Namely the configurable option to automatically, quickly and clearly draw divergence lines onto the oscillator for you as they occur, with minimal delay. It also has the addition of unique alerts, so you can be notified when divergences occur without spending all day watching the charts. Furthermore, this version of the Ultimate Oscillator comes with configurable lookback periods, which can be configured in order to adjust the sensitivity of the divergences, in order to suit shorter or higher timeframe trading approaches.


The Ultimate Oscillator

Tradingview describes the Ultimate Oscillator as follows:

“The Ultimate Oscillator indicator (UO) indicator is a technical analysis tool used to measure momentum across three varying timeframes. The problem with many momentum oscillators is that after a rapid advance or decline in price, they can form false divergence trading signals. For example, after a rapid rise in price, a bearish divergence signal may present itself, however price continues to rise. The ultimate Oscillator attempts to correct this by using multiple timeframes in its calculation as opposed to just one timeframe which is what is used in most other momentum oscillators.”

More information on the history, use cases and calculations of the Ultimate Oscillator can be found here: tradingview.com/scripts/ultimateoscillator/?solution=43000502328


What are divergences?

Divergence is when the price of an asset is moving in the opposite direction of a technical indicator, such as an oscillator, or is moving contrary to other data. Divergence warns that the current price trend may be weakening, and in some cases may lead to the price changing direction.

There are 4 main types of divergence, which are split into 2 categories;
regular divergences and hidden divergences. Regular divergences indicate possible trend reversals, and hidden divergences indicate possible trend continuation.

Regular bullish divergence: An indication of a potential trend reversal, from the current downtrend, to an uptrend.
Regular bearish divergence: An indication of a potential trend reversal, from the current uptrend, to a downtrend.
Hidden bullish divergence: An indication of a potential uptrend continuation.
Hidden bearish divergence: An indication of a potential downtrend continuation.


Setting alerts.

With this indicator you can set alerts to notify you when any/all of the above types of divergences occur, on any chart timeframe you choose.


Configurable lookback values.

You can adjust the default lookback values to suit your prefered trading style and timeframe. If you like to trade a shorter time frame, lowering the default lookback values will make the divergences drawn more sensitive to short term price action.


How do traders use divergences in their trading?

A divergence is considered a leading indicator in technical analysis, meaning it has the ability to indicate a potential price move in the short term future.

Hidden bullish and hidden bearish divergences, which indicate a potential continuation of the current trend are sometimes considered a good place for traders to begin, since trend continuation occurs more frequently than reversals, or trend changes.

When trading regular bullish divergences and regular bearish divergences, which are indications of a trend reversal, the probability of it doing so may increase when these occur at a strong support or resistance level. A common mistake new traders make is to get into a regular divergence trade too early, assuming it will immediately reverse, but these can continue to form for some time before the trend eventually changes, by using forms of support or resistance as an added confluence, such as when price reaches a moving average, the success rate when trading these patterns may increase.

Typically, traders will manually draw lines across the swing highs and swing lows of both the price chart and the oscillator to see whether they appear to present a divergence, this indicator will draw them for you, quickly and clearly, and can notify you when they occur.


Disclaimer: This script includes code from the stock UO by Tradingview as well as the RSI divergence indicator.