Introduction to the Divergence Based on Standard MACD with Alerts Indicator
Divergence trading is one of the most popular types of reversal trading setups which seasoned profitable traders use. Among the various indicators, the MACD is also often the most widely used indicator for identifying divergences.
This indicator is a technical tool which traders can use to easily identify divergences based on the MACD.
What is the Divergence Based on Standard MACD with Alerts Indicator?
This MACD Divergence Indicator is a custom technical indicator which automatically identifies divergence using the histogram bars of a basic MACD Indicator.
It plots arrows on the MACD bars to point the direction of the reversal signal based on divergences as well as its corresponding lines on the price chart to show the divergences.
Lines below price action connecting swing lows indicate a bullish divergence while lines above price action connecting swing highs indicate a bearish divergence.
Solid lines indicate a regular divergence while dashed lines indicate a hidden divergence.
How the Divergence Based on Standard MACD with Alerts Indicator Works?
The Divergence Based on Standard MACD with Alerts Indicator uses an algorithm which compares the values of the MACD bars with prior bars identifying the peaks and dips of its oscillations. It then compares the peaks and dips with the corresponding swing high and swing low on price action. The indicator then automatically plots the arrows and lines whenever it detects divergences based on its algorithm.
How to use the Divergence Based on Standard MACD with Alerts Indicator for MT4
This indicator has several options within its indicator settings.
“displayAlert” toggles the alert on and off whenever a new divergence is detected.
“i_fastEMA”, “i_slowEMA”, and “i_signalMA” refers to the number of periods the indicator would use to compute for its underlying EMA lines as wells as its corresponding signal line.
“DrawPriceLines” toggles the plotting of the lines on the price chart on and off.
“DrawArros” toggles the plotting of the arrow signals on and off.
“drawDivegenceLines” toggles the plotting of the divergence lines on and off.
This indicator can be used as a reversal entry signal indicator based on divergences. However, since this indicator is based on an algorithm, it is not perfect in identifying divergences which are often objective. It is best to visually inspect a divergence signal if it is valid or not before opening a trade. It is also best to trade these signals in confluence with other technical indications.
Buy Trade Setup
When to Enter?
Identify a bullish divergence signal based on an arrow pointing up plotted on the indicator window. Inspect if the bullish divergence is valid and open a buy trade if so. 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?
Identify a bearish divergence signal based on an arrow pointing down plotted on the indicator window. Inspect if the bearish divergence is valid and open a sell trade if so. 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.
Conclusion
This indicator can be used as a clue if there are divergences that are developing on the price chart. However, it should not be blindly taken as some of the signals may be inaccurate. It is still best to visually confirm the divergence signals for better accuracy.
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Divergence Based on Standard MACD with Alerts Indicator for MT4