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2002issue C071-6

Building classic divergence filters from RSI and MACD

Classic divergence is constructed when price makes a new high or low and the oscillator refuses to confirm that extreme. This article shows how to pair that price structure with RSI and MACD, split simple from compound patterns, and keep only extreme-zone nonconfirmations so the condition can be tested.

  • Classic divergence is constructed when an oscillator refuses to confirm a new price high or low. Reverse divergence is the opposite mismatch and is treated as a separate condition.
  • Simple divergence is a single unconfirmed price extreme. Compound divergence is built when price posts up to three new peaks or lows that the oscillator fails to confirm.
  • The extreme-zone filter ignores classic divergences whose oscillator values fall between 30 and 70.
  • Joint new highs or lows are a stable trend with no signal. Only a visible split is an unstable trend and is treated as a warning.
Entries in this reading3 entries
Current trackMACD115 readingsPrice-indicator divergence142 readingsRelative Strength Index186 readings

What classic divergence constructs

Classic divergence is constructed when an oscillator refuses to mirror a new price high or low. Reverse divergence is the opposite mismatch, in which price refuses to follow an oscillator extreme, and is treated as a separate condition.

The filter is built from that visible split between price and the oscillator. Reverse divergence is recorded separately and is not mixed into the classic-divergence rule.

How RSI and MACD enter the filter

Among oscillators applied to the same price series, RSI and momentum rate of change are described as most sensitive to divergence. MACD still shows usable divergence despite moving-average lag. Stochastics diverge less often.

The archive pairs the same price structure with RSI and with MACD when it constructs the classic-divergence marks.

Simple and compound patterns

Simple classic divergence is a single unconfirmed price extreme. That means a new high with a lower oscillator high or a double top, or a new low with a higher oscillator low or a double bottom.

Compound divergence is constructed when price posts up to three new peaks or lows while the oscillator fails to confirm all three. Those sequences are described in frequent, common, and rarely seen shapes.

Editorial: Simple and compound patterns should be split before the condition is tested, because they are different counts of unconfirmed extremes, not the same mark.

The extreme-zone filter

The construction rule is to ignore classic divergences whose oscillator values fall between 30 and 70. The cited ASA, euro, and Nasdaq cases are said to stay outside that band.

Editorial: Keeping only extreme-zone nonconfirmations is the step that makes the chart condition falsifiable. Mid-band splits are discarded at construction rather than spotted after the fact.

Stable trend and unstable trend

Joint new highs or lows are classified as a stable trend with no signal. Only a visible split between price and oscillator is classified as an unstable trend and treated as a warning that the prevailing move is suspect.

Constructed marks on the example charts

A weekly gold-trust example is presented as simple divergences on both RSI and MACD. Those simple divergences generate long-term buy and sell marks without waiting for a later trend break.

Euro and Nasdaq chart examples are used to show compound, and mixed compound-plus-simple, RSI and MACD divergences as constructed buy and sell marks.

The same construction across time frames

The same divergence construction is applied from long-term investment charts through short-term trading and intraday scalping. It is not claimed to catch every trend change.

ASA weekly price with RSI and MACD divergence marks, 1993–2002

Weekly ASA candlesticks fall from the mid-50s after 1994 into the mid-teens by 2000, then rebound toward 30 in 2002. MACD (top pane) and RSI (bottom pane) carry the simple and compound nonconfirmations the article treats as long-term buy and sell marks. Values were read from the plotted weekly chart, not from a table.
Weekly ASA candlesticks fall from the mid-50s after 1994 into the mid-teens by 2000, then rebound toward 30 in 2002. MACD (top pane) and RSI (bottom pane) carry the simple and compound nonconfirmations the article treats as long-term buy and sell marks. Values were read from the plotted weekly chart, not from a table.ASA (gold-based investment trust) · weekly · 1993-01-01T00:00:00.000Z to 2002-06-30T00:00:00.000Z

Approximate weekly closes digitized from the raster; price axis is logarithmic (60/50/40/30/20). RSI pane is scaled 0–100 with a mid-line at 50. No numeric table appears in the source.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
27 of 80 in the MACD track
20021-3 pp.Next on MACDWeekly highs and lows as trend gatesProject the prior week's high and low forward as weekly resistance and weekly support so the coming week has a defined gate.
All readings on this track · 80 readings
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  2. 1989Four-span MACD lookbacks as perishable parameters
  3. 1989Weekly then daily MACD confirmation on individual stocks
  4. 1991Regime-gated MACD and stochastic rules inside a checklist
  5. 1991Constructing MACD signal lines and divergence tests
  6. 1991MACD parameter order and cycle phase lag
  7. 1992Lengthened bond MACD as an equity regime filter
  8. 1992Long-horizon MACD construction from paired exponential averages
  9. 1993Constructing a signed ten-point trend filter
  10. 1994Constructing lag-reduced double exponential averages for MACD
  11. 1994Seeding DEMA2 filters to build a MACD signal
  12. 1994Constructing MACD from lag-reduced exponential averages
  13. 1994TEMA1 from nested exponential averages, then a two-horizon MACD
  14. 1994Constructing entry and exit on a relative-strength MACD
  15. 1994Constructing a relative-strength MACD crossover spreadsheet
  16. 1995Consensus presignal filters for Relative Strength Index, MACD and the Stochastic oscillator
  17. 1997Confirm the MACD turn with price, then exit on the histogram
  18. 1997Reconstructing a stochastic oscillator, MACD, and a triple-smoothed oscillator
  19. 1997Moving-average windows before crossovers and MACD
  20. 1999Second-stage MACD on relative-strength inputs
  21. 1999Constructing MACD from exponential-average spreads for crossover and divergence
  22. 1999Coding candlesticks into numeric indicators
  23. 2001Second-low confirmation with a percentage oscillator and money-flow filter
  24. 2001Constructing MACD from exponential average spreads and a signal line
  25. 2002Separate bounded and trend-following oscillator rules
  26. 2002Sort the regime before assigning MACD and stochastic jobs
  27. 2002Building classic divergence filters from RSI and MACD
  28. 2002Weekly highs and lows as trend gates
  29. 2002Constructing channel-normalized Fisher reversal signals
  30. 2002Affine-price and the Fisher transform as a constructed companion to MACD
  31. 2003Regularized EMA construction with a MACD line and a thrust oscillator
  32. 2003Curvature-penalized exponential averages versus MACD
  33. 2003MACD, moving averages, and a trend filter as one timing system
  34. 2003Fractional MACD and linear-regression reversal construction
  35. 2004Weekly MACD-histogram timing of bear-market rallies
  36. 2004Candlestick triggers filtered by MACD divergence
  37. 2004Staging energy-complex tops with trendline, breakout, and MACD
  38. 2005Selling climax holds versus fails
  39. 2006Treat a sideways Wave as permission before a breakout
  40. 2007MACD with a Stochastic oscillator for spotting trend reversals
  41. 2007Rebuilding an S&P 500 fifth-wave count after a broken target
  42. 2007Constructing MACD, RSI, and stochastic confirmation for futures
  43. 2007MACD histogram divergence needs a confirming close
  44. 2007Write the plan as a stack: ratio, boundary, then oscillators
  45. 2008MACD divergence and Stochastic oscillator confirmation on lumber futures
  46. 2008Assign confirmation, timing, and a stop before a currency pair is tested
  47. 2008Confirm the ten-bagger launch path before the MACD exit
  48. 2008Reading the offloaded evidence file
  49. 2008A Leader companion for MACD direction warnings
  50. 2008Relative strength exits with MACD averages and RSI
  51. 2008Assign one job per indicator in a three-screens rule set
  52. 2008Sequencing RSI, MACD, and average crossovers
  53. 2010Constructing the Schaff Trend Cycle from MACD and a dominant-cycle window
  54. 2010Schaff Trend Cycle as a MACD and Stochastic oscillator combination
  55. 2010Combining Relative Strength Index, the stochastic oscillator, and MACD as slope filters
  56. 2010Short-term wave and ratio clues without direction calls
  57. 2010A precise pullback entry and an unplanned profit-protection exit
  58. 2010Filtering MACD false signals with trendline breaks
  59. 2011Vendor feeds as an input variable in a MACD evaluation
  60. 2012Out-of-the-money versus in-the-money option sensitivity to implied volatility
  61. 2012MACD window tuning as hold-time control
  62. 2012Combining a moving-average crossover with MACD and support-resistance
  63. 2012Testing a published MACD entry with a histogram and signal-line agreement filter
  64. 2012Treat sample systems as a lab before live rules
  65. 2013Constructing moving averages and MACD from one price series
  66. 2013The next-bar price that forces a MACD signal-line cross
  67. 2013Constructing next-bar MACD reversal prices
  68. 2013Constructing inverted MACD reversal prices
  69. 2014Shared-filter combinations of the stochastic oscillator, MACD, and RSI
  70. 2014Square-root lookbacks for combined MACD and RSI
  71. 2015Audit open interest and trend before trusting oscillator crossovers
  72. 2016MACD without a signal line, confirmed by moving-average trend filters
  73. 2016Use RSI, MACD, and a moving average as a market-health consensus
  74. 2016MACD line versus histogram is a display problem first
  75. 2017Weekly and daily MACD on a single daily chart
  76. 2017Weekly and daily MACD as a stacked momentum filter
  77. 2017Nested weekly and daily MACD from paired EMA spreads
  78. 2018Weekly and daily PPO scale versus MACD, with bounded RSI and stochastic readings
  79. 2018Constructing a weekly and daily percentage price oscillator
  80. 2020Constructing Wyckoff tape reading with MACD, moving-average, and RSI filters
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All 115 readings tagged MACD
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