Introduction to the Awesome Oscillator Divergence Indicator
Divergence based trading is one of the techniques seasoned traders use to trade reversals. There are many retail traders who consistently make profits using divergences. Awesome Oscillator Divergence Indicator allows new traders to easily detect divergences by indicating points on the price chart where there may be a divergence with the Awesome Oscillator.
What is the Awesome Oscillator Divergence Indicator?
The Awesome Oscillator Divergence Indicator is a modified version of the Awesome Oscillator (AO) which detects divergences.
This indicator plots histogram bars which oscillate around zero and changes color to indicate the direction of the momentum just as the regular Awesome Oscillator. It plots positive green bars to indicate a strengthening bullish trend and positive red bars to indicate a weakening bearish trend. It also plots negative red bars to indicate a strengthening bearish trend and negative green bars to indicate a weakening bearish trend.
Aside from this, it also plots lines and arrows to indicate divergences. It plots lines above price action and the oscillator along with an arrow pointing down to indicate a bearish divergence, and lines below price action and the oscillator with an arrow pointing up to indicate a bullish divergence. It plots solid lines to indicate a regular divergence and dashed lines to indicate a hidden divergence.
How the Awesome Oscillator Divergence Indicator Works?
This indicator calculates for the bars just as the basic AO does. It calculates for the difference between a 5-period and 34-period Simple Moving Average lines, which are based on the median of each bar. It then plots the bars based on the difference.
It then compares the bars to detect the peaks and dips of the oscillations of the AO bars and compares the identified peaks and dips on the price action. It then plots the lines and arrows whenever it detects divergences.
How to use the Awesome Oscillator Divergence Indicator for MT5
This indicator has several options within its settings.
“Deviation_percent” modifies the percentage threshold for the indictor to detect divergences.
It also has several options to allow for alerts and push notifications which can be toggled on and off within the indicator settings.
This indicator can be used as a reversal signal indicator based on divergences. Traders can use the arrows and lines plotted by the indicator as the reversal signals. However, traders should still visually observe and confirm the divergences for better results. Signals should also be in confluence with reversal candlestick patterns or be at least a candle away from the pattern.
Buy Trade Setup
When to Enter?
Open a buy order on the confluence of a bullish divergence and a bullish reversal candlestick pattern. Set the stop loss on the support below the entry candle.
When to Exit?
Close the trade as soon as price action shows signs of a bearish reversal.
Sell Trade Setup
When to Enter?
Open a sell order on the confluence of a bearish divergence and a bearish reversal candlestick pattern. Set the stop loss on the resistance above the entry candle.
When to Exit?
Close the trade as soon as price action shows signs of a bullish reversal.
This indicator can be an effective divergence based reversal signal indicator. However, the divergences it detects are not always accurate based on the peaks and dips on price action. Users should still confirm the divergences and can even allow for some adjustments based on their observation.
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