Enhanced Momentum Divergence Radar+ [Alpha Extract]

Enhanced Momentum Divergence Radar+ [Alpha Extract]

The AE's Enhanced Momentum Divergence Radar+ is designed to detect momentum shifts and divergence patterns, helping traders identify potential trend reversals and continuation points. By normalizing momentum readings and applying divergence detection, it enhances market timing for entries and exits.

🔶 CALCULATION

The indicator calculates normalized momentum using a combination of Detrended Price Oscillator (DPO) and volatility-adjusted smoothing techniques. It highlights overbought and oversold conditions while identifying bullish and bearish divergences.

Core Calculation:

ATR-based volatility adjustment ensures dynamic sensitivity.
DPO is derived from the price minus a simple moving average (SMA) to isolate cyclical movements.
Momentum score is normalized using historical max values for consistent scaling.
Thresholds are dynamically adjusted based on average absolute momentum.

dpo = close - ma[barsback]
sd = (dpo / volatility) * 100
normalizedSD = sd / maxAbsSD

The momentum score is plotted as a histogram, where:

Green bars indicate strong upward momentum.
Red bars indicate strong downward momentum.
Neutral values fade into gray.

🔶 DETAILS

📊 Visual Features:

1. Histogram bars dynamically color-coded based on momentum strength.
   
2. Threshold bands provide reference points for overbought and oversold levels.
   
3. Divergence markers (Bullish/Bearish & Hidden Bullish/Bearish) highlight key reversal signals.
   

🛠 How Divergences Work:

Bullish Divergence (𝓞𝓢): Price makes a lower low while momentum makes a higher low.
Bearish Divergence (𝓞𝓑): Price makes a higher high while momentum makes a lower high.
Hidden Divergences confirm trend continuations rather than reversals.

📌 Example of Divergence Logic:

bullishDiv = (low[0] == priceLow) and (sd[0] > momentumLow)
bearishDiv = (high[0] == priceHigh) and (sd[0] < momentumHigh)

🔶 EXAMPLES

📍 The chart below illustrates price reacting to momentum divergences, identifying potential tops and bottoms before major price moves.

📌 Example snapshots:

A bullish divergence leading to a reversal in price.
A bearish divergence marking the beginning of a downtrend.


🔶 SETTINGS

🔹 Customization Options:

• Lookback Period: Adjusts sensitivity to market cycles.
  
• Smoothing Period: Controls signal clarity.
  
• Color Options: Enables bar coloring based on momentum strength.
  
• Divergence Sensitivity: Choose to display hidden divergences.