TASC 2008-02 | Trading Divergences (Vervoot)

Traders' Tip text

Strategy Code

using System;
using System.Collections.Generic;
using System.Text;
using System.Drawing;
using WealthLab;
using WealthLab.Indicators;

namespace WealthLab.Strategies
{
	public class DivergenceDetector : WealthScript
	{
		private StrategyParameter peakPctPrice;
		private StrategyParameter peakPctIndicator;      
		private StrategyParameter exitBars;   
		public DivergenceDetector()
		{
			peakPctPrice = CreateParameter("Price Peak%", 4, 2, 10, 1);
			peakPctIndicator = CreateParameter("Indctr Peak%", 20, 5, 30, 1);
			exitBars = CreateParameter("Exit bars", 5, 1, 30, 1);         
		}   
   
		// Strategy logic
		protected override void Execute()
		{      
			int pkPctPrice = peakPctPrice.ValueInt;
			int pkPctIndicator = peakPctIndicator.ValueInt;
			int barsToHold = exitBars.ValueInt;
			int lastDetectedBar = 0;
			_barLastChecked = 0;
      
			DataSeries rsi = RSI.Series(Close, 14);
			ChartPane rsiPane = CreatePane(40, true, true);
			PlotSeries(rsiPane, rsi, Color.Brown, WealthLab.LineStyle.Solid, 2);
			for(int bar = 20; bar < Bars.Count; bar++)
			{            
				if (IsLastPositionActive) {
					Position p = LastPosition;
					if (bar + 1 - p.EntryBar >= barsToHold)
						CoverAtMarket(bar + 1, p);
				}
				else if (PeakDivergence(bar, Close, pkPctPrice, rsi, pkPctIndicator, rsiPane))
					ShortAtMarket(bar + 1);      
			}         
		}      

		// Returns true if divergence with indicator detected on the specified bar
		public bool PeakDivergence(int bar, DataSeries price, double pctRev1, DataSeries ind, double pctRev2, ChartPane indPane)
		{
			bool divergeDetected = false;
			PeakTroughMode mode = PeakTroughMode.Percent;
			int pb1 = (int)PeakBar.Value(bar, price, pctRev1, mode);
			if (pb1 > _barLastChecked)   {
				_barLastChecked = pb1;
				int pb2 = (int)PeakBar.Value(pb1, price, pctRev1, mode);
				if (pb2 > -1) {
					int testBar = Math.Min(bar, pb1 + proxBars);
					int ibar1 = (int)PeakBar.Value( testBar, ind, pctRev2, mode);
					// test peak proximity
					if (Math.Abs(pb1 - ibar1) > proxBars) ibar1 = pb1;
					int span = Math.Min(pb1 - pb2 - 1, proxBars);
					testBar = Math.Min(ibar1 - 1, pb2 + span);
					int ibar2 = (int)PeakBar.Value( testBar, ind, pctRev2, mode);
					if (ibar2 < 0) ibar2 = 0;
					if (Math.Abs(pb2 - ibar2) > proxBars) ibar2 = pb2;
					divergeDetected = Math.Sign(price[pb1] - price[pb2]) != Math.Sign(ind[ibar1] - ind[ibar2]);
					if (divergeDetected) {               
						// Highlight bar detected
						SetPaneBackgroundColor(PricePane, bar, Color.FromArgb(40, Color.Blue));
						DrawLine(PricePane, pb1, price[pb1] * 1.01, pb2, price[pb2] * 1.01, Color.Blue, LineStyle.Solid, 2);
						DrawLine(indPane, ibar1, ind[ibar1] * 1.01, ibar2, ind[ibar2] * 1.01, Color.Red, LineStyle.Solid, 2);                  
						if (Math.Sign(price[pb1] - price[pb2]) == 1)
							for (int b = pb2; b <= pb1; b++)
								SetPaneBackgroundColor(indPane, b, Color.FromArgb(40, Color.Red));                  
					}
				}
			}         
			return divergeDetected;            
		}   
		private const int proxBars = 6;
		private int _barLastChecked = 0;      
	}

}