SnaMiguel, before using an indicator you must know what this indicator is about.
Stochastics, RSI, etc... are momentum indicators - no matter what their name is!
When such indicators go from a low value to a higher one, it means that momentum is picking up, whatever the direction the market is moving to.
When the indicator's value goes from a higher to a lower one, it means that momentum is decreasing - not that a price reversal is on the way! It could just happen that the market is going to move sideways for a while, before picking up where it left it before.
That's the reason why there are divergeances between price and indicator.
Finally, indicators indicate, that's all - as their names implies (indicator); I would strongly suggest that you follow price, as doing otherwise would seriously hurt your pocket.
But that's just me, don't take my word for it.
Eduardo.
SnaMiguel, before using an indicator you must know what this indicator is about.
Stochastics, RSI, etc... are momentum indicators - no matter what their name is!
When such indicators go from a low value to a higher one, it means that momentum is picking up, whatever the direction the market is moving to.
When the indicator's value goes from a higher to a lower one, it means that momentum is decreasing - not that a price reversal is on the way! It could just happen that the market is going to move sideways for a while, before picking up where it left it before.
That's the reason why there are divergeances between price and indicator.
Finally, indicators indicate, that's all - as their names implies (indicator); I would strongly suggest that you follow price, as doing otherwise would seriously hurt your pocket.
But that's just me, don't take my word for it.
Eduardo.
Well, yes but you compare the momentum between 2 points, which is what the divergence is about. Maybe something with volume would help, eg Williams' Awesome Oscillator?
Either way, if you are looking at divergences which one do you use if it is telling you 2 things? Say the trend is down, do you onyl follow the lower highs and the indicators lower highs or do you look at the lows as well?
I look at the price! If the indicator is going from a lower reading to a higher one, I trade in the direction of the market, ie. price, if not I wait.
John Bollinger explores volume based indicators in his book "Bolinger on Bollinger Bands", it might interest you.
Eduardo.
As said. Follow price. Do what that tells you to do and use the indicators if you must use them as confirmation of what price is telling you. Don't get lost in indicators. Everyone does of course unless you take them off alltogether.
Divergence or continuation indicators? They are both right at some point. Not always at the right time or price. If one is showing one way and one is showing the other direction, which do you use?
Use the one whichever agrees with where the price is going.
Think on this.
We used to draw charts by hand in the old days. You only drew an indicator if you first knew how it was derived from the price in the first place. And why would you go to the extra effort of drawing an indicator when price had already told you full well where it was going anyway? Volume probably started the search for the indicator grail when the volume information became easier to obtain. (someone will know which came first).
Computers brought a steady flow of an increasing amount of indicators that some of the big names 'invented' and then sold to the public who are forever trying to find an 'edge' because they are constantly being told that you 'need' x,y,z in order to outsmart the market.
Price will gladly tell you where it is going. You only have to understand what it is telling you.
Divergence or continuation indicators? They are both right at some point. Not always at the right time or price. If one is showing one way and one is showing the other direction, which do you use?
Use the one whichever agrees with where the price is going.
Think on this.
We used to draw charts by hand in the old days. You only drew an indicator if you first knew how it was derived from the price in the first place. And why would you go to the extra effort of drawing an indicator when price had already told you full well where it was going anyway? Volume probably started the search for the indicator grail when the volume information became easier to obtain. (someone will know which came first).
Computers brought a steady flow of an increasing amount of indicators that some of the big names 'invented' and then sold to the public who are forever trying to find an 'edge' because they are constantly being told that you 'need' x,y,z in order to outsmart the market.
Price will gladly tell you where it is going. You only have to understand what it is telling you.
By follow price, do you mean follow the trend or PA and tape reading?
I find the divergence indicators usfel in telling me whether it's going to continue or reverse when price gets to a trendline but if it shows me a divergence on the highs but a continuation on the lows, it's difficult to know which to follow.
No. Just follow price.
The trend is simply where the price has been.
"when price gets to a trendline but if it shows me a divergence on the highs but a continuation on the lows, it's difficult to know which to follow."
That's why when the indicators are not clear to you. Do not use them.
Do what Split advised. You won't go far wrong.
neil
Legendary member
- Messages
- 5,169
- Likes
- 752
A reminder and revision aid for traders relating to "Divergence."
http://www.babypips.com/school/divergence-cheat-sheet.html
Enjoy
http://www.babypips.com/school/divergence-cheat-sheet.html
Enjoy
Similar threads
- Article
