Deviation Index

It measures the relative deviation of the price from its moving average. It is extremely reliable. Accurately determines the areas of overbought and oversold price, and reversal points. 

Features.

- The scale is in % of the maximum deviation. The maximum value it can reach is 100, and the minimum is -100. The overbought zone is above 80, and the oversold zone is below -80;

  which means that the price has reached 80% of its maximum deviation at that point.

- The index is calculated from an exponential moving average, by default its value is 80 periods. The user can try different values ​​until he finds the most appropriate for him.

- The sensitivity of the index increases as the application periods decrease, that is, its variations are more pronounced. Which means that areas in which there is no overvalue, if we go down in periods,

  are now detected, but with a smaller effect on the price.

- The indicator is robust against manipulation candles.

Basic use of the index.

 Sell: The price enters overbought, DI > 80; condition to sell when leaving the area, DI < 80. 

 Buy: The price enters oversold, DI < -80; condition to buy when leaving the area, DI > -80.

Divergences.

 They indicate areas of price reversal. When the price marks two consecutive highs, the second being higher (MAX1 < MAX2) and the index marks a lower value for the second high (DI1 > DI2),

 with overbought in DI1, there is bullish divergence. When the price marks two consecutive lows, with the second  lower (MIN1 > MIN2), and the index marks a higher value for the second low (DI1 < DI2),

 with oversold in DI1, is bearish divergence.

Index formula.

 DI = 100 x deviation of the price with respect to the moving average of n periods / maximum deviation in those n periods.

Recommended indicators: Deviation Index mt5, The Oscillometer, Digital Trend Detector.

Contact email: fve@eloscilometro.com