Request for Divergent Bar Indicator

[marketguy2]

I have an indicator request. Something that I think a lot of NT users would find very useful. Bill Williams looks for what he calls a Bullish or Bearish Divergence Bar to signal a possible reversal in trend.

It is pretty straight forward. To quote Bill: "A bullish divergence bar is a bar that has a lower low and closes in the top half of the bar. A bearish divergence bar is the just the opposite. It is a bar that has a higher high and closes in the lower half of the bar." (Trading Chaos 2nd edition; Page 110).

Its purpose is to give you a heads up that a strong trend move may be ready to turn around. On a bullish divergence bar a buy stop is placed just above the bullish divergent bar and on a bearish divergence bar a sell stop is placed just below the bottom of the bearish divergence bar. If the market reverses, you're in.

Of course, not all trends reversals have a Divergent Bar trumpeting the change. But, it occurs quite often. I have been eyeballing them, but honestly, I miss a lot of them (until after the move).

Is there someone willing to write this for the community.


All the best,

Bryan

[APat1]

Hope this helps

Pat

[sbgtrading]

I made alterations to this indicator, and I believe I fixed some problems with it. Feel free to enjoy or criticize!

[RK_trader]

Thanks Marketguy, Apat1 and sbgtrading.

Aren't there too many of such divergence bars with indicator. Marketguy is that what you are expecting? Can you or anyone post a chart with its intended usage.

Thanks
RK

[marketguy2]

Well, thanks to all. Yeah, it does give a lot of dots. With the rules as stated there are far more dots than I expected. When we are in a definite upward trend, bullish Div dots are clearly not needed or desired. Only bearish signals need be considered of interest. I don't know if there is any way to specify that. Vice versa for bullish signals.

Bill Williams only cares about Divergent Bars in a momentum move as a sign of a possible change in sentiment. Maybe some kind of cross of a moving average would do the trick. Here is Bill William's rule for a trend. Long:5 SMA crosses above a 5 Smoothed Moving Average offset 3 bars into the future (that's the green line in his Alligator). Short: 5SMA below the 5 Smoothed MA.

So, if we only got a bearish Div Bar in an uptrend and bullish Div Bars in a downtrend, that would dramatically improve the indicator.

Divergent Bars used properly can really help you see a change in sentiment.

Thanks,

B