Bullish & Bearish divergence

Ekliptor

Administrator
Staff member
Requirements:

Getting started:

Go to the "Configuration" page of your WolfBot instance and select the configuration named "IndicatorDivergence".
This is an example configuration which you can fine-tune now.

Switch to the "Trading" tab of the "Configuration" page and adjust (remember to read all parameter explanations on this page carefully):
  • your exchange(s) (used for Backtesting as well as live trading)
  • the coin pairs you want to look for bullish/bearish divergence
  • first you should choose your divergence indicator. Possible options are: RSI, MFI or CCI
  • for this strategy I recommend a candleSize from 30min to 4h, try different values and run backtests for your coin
  • the divergenceHistory parameter is an important setting telling WolfBot how many candles to keep in its history to compare the current price and indicator values to. A higher value means it will find more divergences, thus doing more trades. I recommend a value from 12 to 30 depending on your coin, exchange and the markets movements during the last 100 candles of your chosen candleSize parameter.
All config options for the IndicatorDivergence strategy in WolfBot:
indicatorDiv.png

Tips:

  • Set the minVolumeSpike parameter according to your coin by looking at charts. This parameter tells WolfBot how strong the volume of the current candle must be compared to the average volume of "interval" candles to open a position. Good values are 1.1x to 2.5x depending on your coin.
    Quite often at the end of a bull run there is a stronger-than-average volume move upwards (not necessarily the highest volume!) showing the last efforts of the bulls trying to hit some stop-losses (the same is true at the lower end in a bear market).
  • You may use the parameters maxGoLongPrice and minGoShortPrice to tell WolfBot to only trade on bullish/bearish divergences at good price levels.


The trading idea behind it:

You want to automatically detect and trade on a divergence of the price making a (slightly) new extreme (high or low), while your chosen indicator fails to make a new extreme. This is a sign that the bulls or bears are exhausted and the market will turn in the other direction soon, often with novice traders being the last ones still buying/selling to follow the trend due to FOMO (fear of missing out).

A bullish divergence occurs when price makes a lower low while the indicator fails to make a lower low as well. This is usually a good moment to buy at a cheap price.
bullish-divergence.png


A bearish divergence occurs when price makes a higher high while the indicator fails to make a higher high as well. This is usually a good moment to sell (or go short).
bearish-divergence.png
 
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