Who trades using divergence between price and indicator?

This is a discussion on Who trades using divergence between price and indicator? within the Technical Analysis forums, part of the Methods category; thnx bbmac. much appreciated....

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Old Oct 10, 2007, 10:55pm   #8
DDI
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DDI started this thread thnx bbmac. much appreciated.
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Old Oct 10, 2007, 10:58pm   #9
 
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Originally Posted by DDI View Post
I simply am not getting results. I dont think I'm doing anything wrong. I wait for the divergence confirmation between price and indicator(MACD or Stoch), followed by a bullish/bearish candlestick formation and then press the trigger. I have more losers than winners.

When I look at charts i see most the big moves had proceded some form of divergence but in practice its not working for me.

Any tips anyone?
Hi DDI,

A couple of points

i) if you don't apply simple S&R and filter your divergence signals properly you could easily bust your account.
ii) bbmac has clearly illustrated that there are divergences, divergences and divergences
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Old Oct 10, 2007, 11:09pm   #10
DDI
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Originally Posted by fibonelli View Post
Hi DDI,

A couple of points

i) if you don't apply simple S&R and filter your divergence signals properly you could easily bust your account.
ii) bbmac has clearly illustrated that there are divergences, divergences and divergences
Thanks fibonelli. I think if I had not done a few good trend/momentum trades I would have already blown my account thanks to my bottom/top picking (by using divergences)!!
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Old Oct 10, 2007, 11:18pm   #11
 
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Following on what Fibonelli says.

A divergence occurs when price makes new highs and an indicator makes a lower high (nice simple example). For a macd divergence that means that the distance between the fast and slow mas is lower for the second high - this is a simple reduction in momentum (for physicists a loss of measured acceleration). For stoch divergence it means that the close of the high bars in its X (=stoch length) channel is lower in the second case than the first - a reduction in momentum but also takes into account position of close possibly being lower on the bar).

You can go on about how the divergence is constructed but mostly its a reduction in the acceleration of price measured over so many bars (determined by stoch, rsi or macd lengths).

And the question a trader has to ask is "for this contract, does a reduction in acceleration mean that price is likely to reverse?"

Likely is a statistical measure. To answer that question you may need some things to improve the chance of "likely." Some would use support and resistance (could be prior highs or fibs or channels or confluence of these). Some would add a second divergence. Some would say never trade divergence in a break out and run situation. I only use divergence for exits and I watch the current character of the market - some days its exit on divergence, others its exit one peak after divergence. You get the idea.

Nothing in consistently profitable trading is as easy as "got a divergence, got price confirmation, trade it." Good trading requires studying the things you want to trade and really understanding how they fit together. Which is fun (thank heavens)
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Old Oct 17, 2007, 9:22pm   #12
 
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Originally Posted by bbmac View Post
The screenshots show examples of
1. Regular immediate divergence
2. Regular sequential divergence
3. regular hidden/reverse divergence.

My chosen pattern set-up rules in respect of these type of divergences state that my lead oscillator (osma) has to show seperate peak/valley regular immediate/sequential divergence whereas my second oscillator (macd) can show same or seperate peak/valley regular immediate/sequential at the same time.

Insofar as Hidden/reverse divergence is concerned only regular immediate seperate peak/valley will do.

Different indicators, and even the same indicators on different settings will exhibit different behaviour characteristics and it is up to you to find the settings/behaviour characteristics that produce the highest probability patterns/set-ups for your style of trading, proven over any extended sample.


Hope this helps.
enclosed a quick diagram.done by pg dave.this explains the types of divergence.regular sequential not on though
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hidden_divergence.png  
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Old Oct 17, 2007, 9:39pm   #13
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14 period RSI divergence is good enough in any time frame
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Old Oct 28, 2007, 11:03am   #14
 
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bbmac: i managed to get the bubble thread on support and resistance from forex-tsd.looks like the thread was pulled by the administrator.enclosed is a copy of what was on the thread
any reason why it got pulled.?
have u got his manual.?
are there any different methods of entry/exit for the different types of trends he describes.ie creeping/normal and blow off
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File Type: doc Bubble[1].doc (836.0 KB, 360 views)
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