Detecting Price and Awesome Oscillator Divergences

Summary

This document describes a custom indicator that compares price swings with the Awesome Oscillator (AO) to identify potential bullish and bearish divergences. It presents a bullish case when price makes lower lows while the oscillator makes higher lows, and a bearish case when price makes higher highs while the oscillator makes lower highs. The indicator is described as plotting arrows, an AO histogram, and trendlines to make these conditions visible.

The method looks for local tops and bottoms, checks whether price or oscillator values cross candidate trendlines, and counts aligned points as part of divergence confirmation. These checks can help reject some invalid trendline setups, but the document provides no formal thresholds, backtest results, or evidence that signals predict profitable trades. Divergence is presented as a possible reversal or continuation cue, so the indicator's visual signals should not be read as a guarantee of either outcome.

Key ideas

• The indicator compares price swing highs or lows with corresponding Awesome Oscillator swings.
• Lower price lows paired with higher oscillator lows are treated as bullish divergence.
• Higher price highs paired with lower oscillator highs are treated as bearish divergence.
• Local-extreme detection and trendline crossing checks are used to assess candidate divergences.
• The document gives no performance testing or proof that the signals are profitable.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.