Silver Projection Divergence

SILVER PROJECTION DIVERGENCE
Standardized Fair Value Divergence Oscillator

OVERVIEW
The Silver Projection Divergence oscillator is the companion indicator to the Silver Macro Projection Model. It quantifies the gap between silver's actual price and its projected fair value, displaying this divergence as a standardized z-score. This format makes it easier to identify extreme conditions and time entries/exits based on mean reversion.

HOW IT WORKS
The oscillator converts raw divergence (Actual Silver - Projected Silver) to a z-score by normalizing against its historical distribution:

• Z-Score > 0 - Silver trading ABOVE projected value (overvalued)
  
• Z-Score < 0 - Silver trading BELOW projected value (undervalued)
  
• Z-Score > 2 - Extreme condition (2 standard deviations)
  

VISUAL ELEMENTS

Main Plot

• Green line/histogram - Negative divergence (undervalued)
  
• Red line/histogram - Positive divergence (overvalued)
  
• Color intensity increases when divergence is expanding
  

Reference Lines

• +2 sigma / -2 sigma (dashed) - Extreme zones
  
• +1 sigma / -1 sigma (dotted) - Moderate deviation
  
• Zero line - Fair value equilibrium
  

Signal Markers

• Green Triangle (bottom) - Z-score crosses below -2 (STRONG BUY)
  
• Red Triangle (top) - Z-score crosses above +2 (STRONG SELL)
  

Background

• Light red background - Extreme overvaluation (Z > 2)
  
• Light green background - Extreme undervaluation (Z < -2)
  

SIGNAL INTERPRETATION

• Z > +2.0 - Extreme Overvaluation - STRONG SELL / Take profits
  
• Z +1.0 to +2.0 - Moderate Overvaluation - Caution / Reduce exposure
  
• Z -1.0 to +1.0 - Fair Value Range - Neutral / Hold
  
• Z -2.0 to -1.0 - Moderate Undervaluation - Accumulate / Scale in
  
• Z < -2.0 - Extreme Undervaluation - STRONG BUY signal
  

COMPONENT TABLE

The bottom-right table breaks down divergence by factor:

• Gold Ratio - Deviation from gold-implied fair value
  
• M2 Supply - Divergence from monetary-implied value
  
• DXY Signal - Dollar strength bullish/bearish indication
  
• Equities - Equity market positioning signal
  
• OVERALL - Combined signal with Z-score
  

TRADING APPLICATIONS

Mean Reversion Strategy

• Enter LONG when Z < -2 and begins rising
  
• Enter SHORT when Z > +2 and begins falling
  
• Use zero-line crossings for trend confirmation
  

Trend Following Filter

• Only take long trades when Z < 0 (undervalued)
  
• Only take short trades when Z > 0 (overvalued)
  

Divergence Confirmation

• Bearish: Price makes new highs while Z-score makes lower highs
  
• Bullish: Price makes new lows while Z-score makes higher lows
  

ALERTS

• Extreme Undervaluation - Z crosses below -2
  
• Extreme Overvaluation - Z crosses above +2
  
• Divergence Turned Positive - Crossed above zero
  
• Divergence Turned Negative - Crossed below zero
  

COMBINED USAGE

For best results, use both with Silver Macro Projection Model - [BCT] indicator:

• Main Indicator - Visual context of actual vs. projected on price chart
  
• Divergence Oscillator - Precise measurement for timing decisions
  

The main indicator (Silver Macro Projection Model - [BCT]) shows where silver should be; this oscillator shows how extreme the mispricing is and when to act.

Disclaimer: This indicator is for educational purposes only. Past correlations do not guarantee future relationships. Market conditions can alter historical relationships. Always use proper risk management.