Entropy Divergence (No Repaint) [PhenLabs]📊 Entropy Divergence (No Repaint)
Version: PineScript™ v6
📌 Description
The Entropy Divergence Scalper (EDS) is a sophisticated trading indicator that applies information theory to market analysis. By calculating Shannon Entropy on price returns, it identifies periods when market behavior becomes more predictable and orderly—the ideal conditions for divergence-based trading.
Traditional divergence indicators generate signals regardless of market conditions, leading to many false signals during chaotic, high-entropy periods. EDS solves this by acting as an intelligent filter: it only triggers signals when entropy drops below your specified threshold, indicating that the market has entered a more structured, tradeable state.
This indicator is built with a strict non-repainting guarantee. All signals use barstate.isconfirmed and only appear after bar close, giving you reliable signals you can trust for live trading.
🚀 Points of Innovation
Shannon Entropy integration measures market randomness using information theory mathematics
Dual divergence engine detects both RSI and Volume divergences simultaneously
Entropy-filtered signals eliminate noise by only triggering in low-entropy (predictable) market conditions
100% non-repainting architecture ensures all signals are confirmed and historically accurate
Multi-layer confirmation combines entropy state, RSI divergence, and volume divergence for higher probability setups
Dynamic color visualization provides instant visual feedback on current market entropy state
🔧 Core Components
Shannon Entropy Calculator: Bins price returns into histograms and calculates entropy using H(X) = -Σ p(x) × log₂(p(x))
RSI Divergence Detector: Identifies when price makes lower lows while RSI makes higher lows (bullish) or price makes higher highs while RSI makes lower highs (bearish)
Volume Divergence Detector: Spots increasing volume interest at price lows (bullish) or decreasing conviction at price highs (bearish)
Pivot Detection System: Uses configurable lookback periods to identify and track price, RSI, and volume pivots
Signal Classification Engine: Labels signals as RSI, VOL, or RSI+VOL based on which divergences triggered
🔥 Key Features
Entropy Threshold Control: Set your preferred entropy level (default 2.5) to filter out signals during chaotic market periods
Configurable Smoothing: EMA smoothing on entropy values reduces noise while maintaining signal responsiveness
Flexible Pivot Detection: Adjust left/right lookback bars to tune sensitivity for different trading styles
Divergence Search Range: Control how far back the indicator looks for divergence patterns (20-200 bars)
Minimum Pivot Distance: Prevents false signals from pivots that are too close together
Complete Alert System: Four alert conditions for bullish signals, bearish signals, any signal, and low entropy zone entry
🎨 Visualization
Dynamic Entropy Line: Color gradient shifts from green (low entropy/tradeable) to orange (high entropy/chaotic)
Entropy Threshold Line: Dashed reference line shows your configured entropy threshold
Low Entropy Zone Fill: Background highlighting indicates when market is in tradeable low-entropy state
Scaled RSI Plot: RSI overlay scaled to fit the entropy pane for easy correlation analysis
Normalized Volume Bars: Volume displayed as columns normalized against 20-period average
Signal Labels: Clear LONG/SHORT labels with divergence type (RSI, VOL, or RSI+VOL)
Information Table: Real-time display of entropy value, state, RSI, and current signal status
📖 Usage Guidelines
Entropy Lookback Period — Default: 20, Range: 5-100 — Controls how many bars are used for entropy calculation; higher values provide smoother readings but slower response
Histogram Bins — Default: 10, Range: 5-50 — Number of bins for probability distribution; more bins provide finer granularity
Low Entropy Threshold — Default: 2.5, Range: 0.5-4.0 — Signals only trigger when entropy drops below this value; lower settings are more selective
Entropy Smoothing — Default: 3, Range: 1-10 — EMA smoothing applied to raw entropy values for noise reduction
RSI Length — Default: 14, Range: 5-50 — Standard RSI calculation period
Pivot Lookback Left — Default: 5, Range: 2-20 — Bars to the left for pivot detection
Pivot Lookback Right — Default: 2, Range: 1-10 — Bars to the right for pivot confirmation; lower values produce faster signals
Divergence Search Range — Default: 60, Range: 20-200 — Maximum bars to look back for divergence comparison
Min Bars Between Pivots — Default: 5, Range: 3-30 — Minimum distance between pivots for valid divergence detection
✅ Best Use Cases
Scalping during low-volatility consolidation periods when entropy drops and price becomes more predictable
Swing trade entry timing by waiting for divergence signals in low-entropy market conditions
Trend reversal identification when both RSI and Volume divergences align with low entropy readings
Multi-timeframe confirmation by checking entropy state on higher timeframes before taking signals
Filtering existing strategies by adding entropy as a confirmation layer to reduce false signals
⚠️ Limitations
Signals appear with a delay due to pivot confirmation requirements (pivotLookbackRight bars after pivot forms)
May generate fewer signals during strongly trending markets where entropy remains elevated
Entropy threshold requires optimization for different instruments and timeframes
Not designed for high-frequency trading due to bar-close confirmation requirement
Divergences can fail in extremely strong trends where momentum overwhelms the signal
💡 What Makes This Unique
First indicator to combine Shannon Entropy filtering with multi-factor divergence detection
Information theory approach provides mathematical foundation for identifying tradeable market states
Triple confirmation requirement (low entropy + divergence + bar close) significantly reduces false signals
Non-repainting guarantee makes it suitable for strategy backtesting and live trading
Open-source PineScript v6 code allows traders to understand and customize the methodology
🔬 How It Works
Step 1 — Entropy Calculation: The indicator calculates logarithmic returns, bins them into a histogram, and computes Shannon Entropy to measure market randomness
Step 2 — Entropy Filtering: When smoothed entropy drops below the threshold, the market is considered to be in a tradeable low-entropy state
Step 3 — Pivot Detection: The system continuously tracks price, RSI, and volume pivots using configurable lookback parameters
Step 4 — Divergence Analysis: When a new pivot is confirmed, the indicator compares it against previous pivots to detect bullish or bearish divergences
Step 5 — Signal Generation: A final signal only triggers when low entropy conditions coincide with a confirmed divergence pattern on a closed bar
💡 Note:
This indicator is designed for educational purposes and technical analysis. Always use proper risk management and never risk more than you can afford to lose. The non-repainting guarantee means signals will only appear after bar close—watch the indicator in real-time to verify this behavior. For optimal results, consider combining EDS signals with support/resistance levels and overall market context.
Indikator Pine Script®
