Silver Projection DivergenceSILVER PROJECTION DIVERGENCE
Standardized Fair Value Divergence Oscillator
OVERVIEW
The Silver Projection Divergence oscillator is the companion indicator to the Silver Macro Projection Model. It quantifies the gap between silver's actual price and its projected fair value, displaying this divergence as a standardized z-score. This format makes it easier to identify extreme conditions and time entries/exits based on mean reversion.
HOW IT WORKS
The oscillator converts raw divergence (Actual Silver - Projected Silver) to a z-score by normalizing against its historical distribution:
Z-Score > 0 - Silver trading ABOVE projected value (overvalued)
Z-Score < 0 - Silver trading BELOW projected value (undervalued)
Z-Score > 2 - Extreme condition (2 standard deviations)
VISUAL ELEMENTS
Main Plot
Green line/histogram - Negative divergence (undervalued)
Red line/histogram - Positive divergence (overvalued)
Color intensity increases when divergence is expanding
Reference Lines
+2 sigma / -2 sigma (dashed) - Extreme zones
+1 sigma / -1 sigma (dotted) - Moderate deviation
Zero line - Fair value equilibrium
Signal Markers
Green Triangle (bottom) - Z-score crosses below -2 (STRONG BUY)
Red Triangle (top) - Z-score crosses above +2 (STRONG SELL)
Background
Light red background - Extreme overvaluation (Z > 2)
Light green background - Extreme undervaluation (Z < -2)
SIGNAL INTERPRETATION
Z > +2.0 - Extreme Overvaluation - STRONG SELL / Take profits
Z +1.0 to +2.0 - Moderate Overvaluation - Caution / Reduce exposure
Z -1.0 to +1.0 - Fair Value Range - Neutral / Hold
Z -2.0 to -1.0 - Moderate Undervaluation - Accumulate / Scale in
Z < -2.0 - Extreme Undervaluation - STRONG BUY signal
COMPONENT TABLE
The bottom-right table breaks down divergence by factor:
Gold Ratio - Deviation from gold-implied fair value
M2 Supply - Divergence from monetary-implied value
DXY Signal - Dollar strength bullish/bearish indication
Equities - Equity market positioning signal
OVERALL - Combined signal with Z-score
TRADING APPLICATIONS
Mean Reversion Strategy
Enter LONG when Z < -2 and begins rising
Enter SHORT when Z > +2 and begins falling
Use zero-line crossings for trend confirmation
Trend Following Filter
Only take long trades when Z < 0 (undervalued)
Only take short trades when Z > 0 (overvalued)
Divergence Confirmation
Bearish: Price makes new highs while Z-score makes lower highs
Bullish: Price makes new lows while Z-score makes higher lows
ALERTS
Extreme Undervaluation - Z crosses below -2
Extreme Overvaluation - Z crosses above +2
Divergence Turned Positive - Crossed above zero
Divergence Turned Negative - Crossed below zero
COMBINED USAGE
For best results, use both with Silver Macro Projection Model - indicator:
Main Indicator - Visual context of actual vs. projected on price chart
Divergence Oscillator - Precise measurement for timing decisions
The main indicator (Silver Macro Projection Model - ) shows where silver should be; this oscillator shows how extreme the mispricing is and when to act.
Disclaimer: This indicator is for educational purposes only. Past correlations do not guarantee future relationships. Market conditions can alter historical relationships. Always use proper risk management.
Silveranalysis
Silver Macro Projection ModelSILVER MACRO PROJECTION MODEL
Multi-Factor Fair Value Estimation for Silver
OVERVIEW
The Silver Macro Projection Model estimates silver's fair value based on its historical relationships with key macroeconomic drivers. By synthesizing data from gold, M2 money supply, the US Dollar Index, and major equity indices, this indicator projects where silver should theoretically be trading, helping traders identify potential overvaluation and undervaluation conditions.
HOW IT WORKS
This indicator employs three complementary projection methodologies:
Correlation-Weighted Z-Score Composite (50% weight) - Calculates rolling correlations between silver and each input factor. Factors with stronger correlations receive more influence. Each factor is normalized to a z-score, combined into a composite, then converted back to silver's price scale.
Gold/Silver Ratio Mean Reversion (35% weight) - The gold/silver ratio historically exhibits mean-reverting behavior. This component projects silver's implied price based on current gold prices and the historical average ratio.
M2 Money Supply Relationship (15% weight) - Silver tracks monetary expansion over long time horizons. This anchors the projection to the fundamental relationship between silver and the monetary base.
INPUT FACTORS
Gold - Strong Positive - Precious metals move together; silver amplifies gold
M2 Supply - Positive - Inflation hedge; expands with monetary base
DXY - Negative - Dollar strength pressures commodity prices
S&P 500 - Variable - Risk sentiment indicator
Dow Jones - Variable - Industrial/economic health proxy
Nasdaq 100 - Variable - Growth/risk appetite indicator
Russell 2000 - Variable - Small-cap risk sentiment
VISUAL ELEMENTS
Silver Line (Gray) - Actual silver price
Yellow Line - Model's projected fair value
Green Fill - Silver trading BELOW projection (potentially undervalued)
Red Fill - Silver trading ABOVE projection (potentially overvalued)
INFORMATION TABLE
The indicator displays a real-time panel showing:
Current correlation coefficients for each factor
Dynamic weight allocation based on correlation strength
Z-scores for each input factor
Actual vs. projected silver price
Percentage divergence from fair value
Signal classification (Strong Buy to Strong Sell)
SETTINGS
Lookback Settings
Correlation Period (default: 60) - Bars used for rolling correlations
Regression Period (default: 120) - Bars for z-score normalization
Smoothing Period (default: 10) - EMA smoothing on projection
Weight Settings
Use Auto Correlation Weights - Weights adjust dynamically based on correlation strength
Manual Weights - Override with custom factor weights
ALERTS
Silver Extremely Undervalued (Z < -2)
Silver Extremely Overvalued (Z > +2)
Price crossed above projection
Price crossed below projection
BEST PRACTICES
Use on daily timeframe for most reliable signals
Combine with the companion Divergence Oscillator for timing
Extreme divergences (>2 sigma) historically precede mean reversion
Consider macro environment as correlations shift during different regimes
Longer regression periods (150-250) for investing; shorter (60-90) for trading
Disclaimer: This indicator is for educational purposes only. Past correlations do not guarantee future relationships. Always use proper risk management.
