Download RSI, MACD, CCI divergence indicators for Metatrader 4:
What’s inside the package?
Inside you will find divergence indicators for the most popular oscillators:
- divergence for RSI – indicator
- divergence for MACD – indicator
- divergence for CCI – indicator
What are divergence indicators?
These are indicators that indicate divergence on the chart. Divergence takes place when the chart and the oscillator move in different directions. For example, the price rises to new peaks and at the same time the oscillator goes down.
What does divergence mean? How to use it?
Divergence means that the current trend ends and a price move in the other direction is possible.
If you see a divergence you can use it in two ways:
- if you have an open, profitable position then prepare to close it and take a profit
- if you are looking for an opportunity to open a position, divergence can be a good place to open a position in the opposite direction
What to pay attention to when analyzing divergence?
There are a few things to remember if you are trading with the help of divergence.
Divergence is not a signal to open a trade. It can be prolonged in time. What does it mean? For example, on a daily chart you see a divergence forming. The price is rising, but the RSI oscillator has started to fall. This situation takes place over the next 10 days – the price rises, the oscillator falls. It is only on the 11th day that the price breaks down and the drops start.
That is why it is worth having an additional confirmation – a signal to open a position in a given direction.
Never make a decision to open a position on the basis of divergence alone! Not every divergence ends in a change of direction. There are situations when the trend loses its strength, divergence appears, but after a while there is another impulse to continue the previous trend.
You can combine divergence with support and resistance analysis. If you see that divergence appears near an important support or resistance, this increases the chance that there might be a move in opposite direction.
Few words about time frames. You will find divergence at every time frame – from low as 1m, 5m to high as daily, weekly, monthly. The higher the time frame the more important the divergence is. For example, after a divergence from the daily chart you may see a complete change of trend direction.
How to take positions with the help of divergence?
First of all, do not base your position on the divergence itself. You should have a system to confirm when there are conditions to open a position. I personally recommend using trend lines. Divergence can form for a long time. Find the trend line that has been created during that time. After breaking it there is usually a good time to open a position.
You can also use oscillators, e.g. a level 0 break on MACD or CCI.
Which oscillators should I use when looking for divergence?
Divergence is a universal thing – you simply need an oscillator and a price chart. You can basically use most oscillators here. The most popular ones are MACD, RSI.
The first oscillator I recommend for divergence is RSI. It works very well in different markets, at different times. What I like to do is to reduce the RSI periods from the standard 14 to 7 or 9. This will give me more indications of divergence, some of them will be false, but that’s why I have the signal and trading strategy. RSI works well on Forex, commodities and stocks.
The second oscillator that I recommend is MACD. Especially if you trade on stock markets. Divergence on MACD is especially effective on higher time frames (H4, daily etc.). And these are mostly used in stock trading. You can use the MACD with standard settings 12, 26, 9 or check your favorite settings in combination with divergence.
The most common questions about divergence indicators – FAQ
How to use the divergence in Metatrader 4?
By default there are no divergence indicators built in here. However you can download them for free from my blog and install them in Metatrader 4.
What is divergence?
It is a situation when the price continues to move in one direction and the oscillator changes direction and moves in the opposite direction. For example, the price has been rising for several weeks, similarly to RSI, but at some point RSI changes direction and moves down.
Which oscillators can I use?
The most popular ones. Recommended are RSI, MACD, CCI. In this order.
What can I use divergence in trading for?
For two things. First of all, divergence is a signal about the possible end of a movement. If you have an open position you can take profits. The second is when you are looking for an opportunity to open a position. Then when a divergence occurs you open the position after signal to entry.