Detecting Price and Cumulative Volume Divergences with ZigZag Waves

Summary

This indicator compares price swings with cumulative volume waves to flag potential bullish or bearish divergences. It uses a ZigZag calculation to identify successive peaks and troughs, then compares each confirmed swing with the prior swing of the same type. A higher price peak paired with a lower accumulated volume reading is treated as a possible bearish signal; a lower price trough with a lower volume reading is treated as a possible bullish signal. The indicator plots the comparisons as segments and marks signals with arrows.

The ZigZag validation threshold is adjustable, with three percent given as the default, and should be adapted to the instrument and timeframe. The document provides the indicator logic but no performance results or trading-system evaluation. Its key caveat is that ZigZag endpoints can move as new highs or lows form, so recent signals may change before a swing is confirmed. Historical markers may appear only after later validation, which limits their real-time interpretation.

Key ideas

• The indicator compares cumulative volume across successive ZigZag price peaks and troughs.
• A higher price peak with lower cumulative volume is marked as a possible bearish divergence.
• A lower price trough with lower cumulative volume is marked as a possible bullish divergence.
• The ZigZag validation percentage can be adjusted for the instrument and timeframe.
• Unconfirmed ZigZag swings can move, so recent divergence signals may change as prices extend.

Tags

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