Oscillator Price Divergence & Trend Strategy (DPS) // AlgoFyre

23 paź

The Oscillator Price Divergence & Trend Strategy (DPS) strategy combines price divergence and trend indicators for trend trading. It uses divergence conditions to identify entry points and a trend source for directional bias. The strategy incorporates risk management through dynamic position sizing based on a fixed risk amount. It allows for both long and short positions with customizable stop-loss and take-profit levels. The script includes visualization options for entry, stop-loss, and take-profit levels, enhancing trade analysis.


TABLE OF CONTENTS

🔶 ORIGINALITY

🔸Divergence-Trend Combination
🔸Dynamic Position Sizing
🔸Customizable Risk Management

🔶 FUNCTIONALITY

🔸Indicators

🞘 Trend Indicator
🞘 Oscillator Source

🔸Conditions

🞘 Long Entry
🞘 Short Entry
🞘 Take Profit
🞘 Stop Loss

🔶 INSTRUCTIONS

🔸Adding the Strategy to the Chart
🔸Configuring the Strategy
🔸Backtesting and Practice
🔸Market Awareness
🔸Visual Customization

🔶 CONCLUSION


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🔶 ORIGINALITY

The Divergence Trend Trading with Dynamic Position Sizing strategy uniquely combines price divergence indicators with trend analysis to optimize entry and exit points. Unlike static trading strategies, it employs dynamic position sizing based on a fixed risk amount, ensuring consistent risk management. This approach allows traders to adapt to varying market conditions by adjusting position sizes according to predefined risk parameters, enhancing both flexibility and control in trading decisions. The strategy's integration of customizable stop-loss and take-profit levels further refines its risk management capabilities, making it a robust tool for both trending and volatile markets.

🔸Divergence-Trend Combination

By combining trend direction with divergence conditions, the strategy enhances the accuracy of entry signals, aligning trades with prevailing market trends.

🔸Dynamic Position Sizing

This strategy calculates position sizes dynamically, based on a fixed risk amount, allowing traders to maintain consistent risk exposure across trades.

🔸Customizable Risk Management

Traders can set flexible risk-reward ratios and adjust stop-loss and take-profit levels, tailoring the strategy to their risk tolerance and market conditions.

🔶 FUNCTIONALITY

The Divergence Trend Trading with Dynamic Position Sizing strategy leverages a combination of trend indicators and price and oscillator divergences to identify optimal trading opportunities. This strategy is designed to capitalize on medium to long-term price movements and works best on h1, h4 or D1 timeframes. It allows traders to manage risk effectively while taking advantage of both long and short positions.

🔸Indicators

🞘 Trend Indicator: A long trend is used to determine market direction, ensuring trades align with prevailing trends.

Recommendation: We recommend using the Adaptive MAs (Hurst, CVaR, Fractal) // AlgoFyre indicator with the following settings for trend detection. However, you can use any trend indicator that suits your trading style, e.g. an EMA 200.


🞘 Oscillator Source: The oscillator source is used for momentum price divergence identification. Any momentum oscillator can be used, e.g. RSI, Stochastic etc. A good oscillator is the Stochastic with the following settings:

🔸Conditions

🞘 Long Entry: A long entry condition is met if price closes above the trend AND selected divergence conditions are met, e.g. regular bullish divergence with a 10 bar lookback period with the divergence being below the 50 point mean. If the info table shows all 3 columns in the same color, the entry conditions are met and a position is opened.

🞘 Short Entry: A short entry condition is met if price closes below the trend AND selected divergence conditions are met, e.g. regular bearish divergence with a 10 bar lookback period with the divergence being above the 50 point mean.

🞘 Take Profit: Take Profit is determined by the Risk to Reward Ratio settings depending on the price distance between the entry price and the stop loss price, e.g. if stop loss is 1% away from entry and Risk Reward Ratio is 3:1 then Take Profit will be set at 3% from entry.

🞘 Stop Loss: Stop loss is a fixed level away from the trend source. For long positions, stop loss is set below the trend, and for short positions, above the trend.

🔶 INSTRUCTIONS

The Divergence Trend Trading with Dynamic Position Sizing strategy can be set up by adding it to your TradingView chart and configuring parameters such as the oscillator source, trend source, and risk management settings. This strategy is designed to capitalize on short-term price movements by dynamically adjusting position sizes based on predefined risk parameters. Enhance the accuracy of signals by combining this strategy with additional indicators like trend-following or momentum-based tools. Adjust settings to better manage risk and optimize entry and exit points.

🔸Adding the Strategy to the Chart:

1. Go to your TradingView chart.
   
2. Click on the "Indicators" button at the top.
   
3. Search for "Divergence Trend Trading with Dynamic Position Sizing // AlgoFyre" in the indicators list.
   
4. Click on the strategy to add it to your chart.
   

🔸Configuring the Strategy:

1. Open the strategy settings by clicking on the gear icon next to its name on the chart.
   
2. Oscillator Source: Select the source for the oscillator. An oscillator like Stochastic needs to be attached to the chart already in order to be used as an oscillator source to be selectable.
   
3. Trend Source: Choose the trend source to determine market direction. A trend indicator like Adaptive MAs (Hurst, CVaR, Fractal) // AlgoFyre needs to be attached to the chart already in order to be used as a trend source to be selectable.
   
4. Stop Loss Percentage: Set the stop loss distance from the trend source as a percentage.
   
5. Risk/Reward Ratio: Define the desired risk/reward ratio for trades.
   

🔸Backtesting and Practice:

1. Backtest the strategy on historical data to understand how it performs in various market environments.
   
2. Practice using the strategy on a demo account before implementing it in live trading.
   

🔸Market Awareness:

1. Keep an eye on market news and events that might cause extreme price movements. The strategy reacts to price data and might not account for news-driven events that can cause large deviations.
   

🔸Visual Customization

1. Visualization Settings: Customize the display of entry price, take profit, and stop loss levels.
   
2. Color Settings: Switch to the AlgoFyre theme or set custom colors for bullish, bearish, and neutral states.
   
3. Table Settings: Enable or disable the information table and adjust its position.
   

🔶 CONCLUSION

The Divergence Trend Trading with Dynamic Position Sizing strategy provides a robust framework for capitalizing on short-term market trends by combining price divergence with dynamic position sizing. This strategy leverages divergence conditions to identify entry points and utilizes a trend source for directional bias, ensuring trades align with prevailing market conditions. By incorporating dynamic position sizing based on a fixed risk amount, traders can effectively manage risk and adapt to varying market conditions. The strategy's customizable stop-loss and take-profit levels further enhance its risk management capabilities, making it a versatile tool for both trending and volatile markets. With its strategic blend of technical indicators and risk management, the Divergence Trend Trading strategy offers traders a comprehensive approach to optimizing trade execution and maximizing potential returns.