Detecting Price and RSX Divergences for Reversal Signals

Summary

This indicator method searches for bullish and bearish divergences between price swings and RSX, an RSI-derived oscillator. It calculates an RSX-like series from changes in a price measure smoothed with Wilder averages, then compares that series with a short moving average. As oscillator crossovers occur, the procedure records recent oscillator and price highs or lows. It signals bearish divergence when price forms a higher swing high while the oscillator forms a lower one, and bullish divergence when price forms a lower swing low while the oscillator makes a higher one.

The lookback parameter is adjustable, though the supplied code also contains fixed offsets and smoothing choices. The output marks bullish and bearish signals separately. This is indicator code, not a complete trading strategy: it gives no entry management, exits, position sizing, or performance results. Divergence detection depends on swing definitions and parameter choices, and the document provides no evidence about signal reliability across instruments or market conditions.

Key ideas

• The method compares price swing highs and lows with corresponding RSX oscillator swings.
• A higher price high paired with a lower oscillator high produces a bearish divergence signal.
• A lower price low paired with a higher oscillator low produces a bullish divergence signal.
• The lookback is configurable, while other offsets and smoothing choices are embedded in the method.
• The document supplies no trading rules or performance testing for the signals.

Tags

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