divergence patterns

[nkruger]

- My personal demon is betting against market direction so anything that encourages it is off my charts

I do agree with you Nine. Can be a bugg*r sometimes.

I find it helps by using 2 (or sometimes 3) different timeframes, and watch for divergence set~ups to start on all of them.

Or wait for the new trend to establish itself, then get in. You may lose a few pips, but it's a bit safer. As you say, price action will give you clues.

 

[brutusdog]

I do agree with you Nine. Can be a bugg*r sometimes.

I find it helps by using 2 (or sometimes 3) different timeframes, and watch for divergence set~ups to start on all of them.

Or wait for the new trend to establish itself, then get in. You may lose a few pips, but it's a bit safer. As you say, price action will give you clues.

Imo several t/f's are essential for trading any method due to the various cycles of different time frames. As you know Nick divergance is part of my method but the key is where it occurs...I'm happy to go into this in depth if anyone is interested have a good day mate ftse looked good yesterday!

 

[nkruger]

........The key is where it occurs. I'm happy to go into this in depth if anyone is interested......

Fire away BD.

Can only add weight to an already interesting thread.

 

[ceydababy]

Fire away BD.

Can only add weight to an already interesting thread.

I too am using multiple T/F for divergance signals. Using 3 min, 1min and a 30 tick for entry.

Picking Divergance from the MACD. Histogram divergance is normal size, Line Divergance I will hit double size.

Works well.

May I recomend ODL markets who are currently doing a 0 point spread on the FTSE in sizes up to £5 and a 1 points spread in sizes over £5. GREAT for nicking points !

 

[jayjay121]

this is great and definately works and as good if not better than anything ive worked on so far, nothing 100% i know but i still need to find a way to reduce my risk, i keep getting caught on 2,3,4,5 leg divergences taking every entry like you suggest nkruger, but i feel we can narrow entries down further still to bump up overall winning ratio to something like 80+ %, any one got any ideas on how to fine tune the entries?, i hear multiple timeframes by some?, im using only two timeframes so far.

 

[ceydababy]

Charts......

I have attached a 1 min chart of the russell (ER2) from this pm's trading session. I usually trade the 3 min Chart but for the sake of examples the 1 min gives a lot more signals !!

I have marked out all the divergance that I look for:

Hidden Divergance Histogram
Hidden Divergance Lines
Regular Divergance Lines
Regular Divergance Histogram
RBG Divergance Histogram (Thanks BD for the terminology for this !!)

Hopefully the chart doesn't look to confusing.

TRADING METHOD - ER2

SETUP

3 MIN (will take any of the divergance listed above from this T/F)
1 MIN (will only take Line divergance from this T/F)
30 TICK Charts (for honing down entry ONLY....NO DIVERGANCE taken from this t/f although if divergance shows itself on this entry t/f thats a bonus)

EMA (9&18, 10&20 or something similar)

MACD (ANY MACD Setting will do...faster the MACD the more signals, the slower the MACD the less signals you will get)

Bollinger Bands set nice and tight.

Please don't bombard me with messages asking for the individual indicator settings. To be honest the settings really are a matter of preference. As I stated above different indicator settings will show the divergance differently BUT DIVERGANCE IS DIVERGANCE IS DIVERGANCE IT WILL WORK ON ALL MACD SETUPS.

Method

1. Using 3 minute Chart look for divergance to appear

2. Once we get divergance showing itself on the 3 minute chart drop to a 1 minute chart

3. On a 1 minute chart we wait for a signal that the trend may be changing this is taken from the MACD turning from positive to negative or vice versa for a long

4. Once we have this confirmed we drop to the 30 tick chart

5. On the 30 tick chart I am looking to hit some sort of a pullback, this reduces my exposure and increases the chance of profit.

6. A pullback can be defined by the price moving back to the higher moving average or preferably to the bollinger band. A little discretion is advised.

7. Stops are set a few points below/above the relative high as taken from the 30 tick chart. Usual exposure 5-10 points plus spread (currently 3 points with CS I believe)

8. If entry is from 1 minute chart I drop to the 30 tick for trend change and take entry from there too.

Never really written my method out like this properly before, so hopefully all angles are covered. Any questions feel free to ask.

Hopefully I have missed no signals on the ER chart. Think I got them all.


ALSO TO SAY...IF I CAN SEE DIVERGANCE OCCURING ACROSS ALL T/F's for example Regular divergance on a 30tick with hidden divergance on the 3 minute and 1 minute the chance of a big move is that much greater. Again it's a case of suck it and see. That doesn't mean to say that I only take signals where multiple divergances occur.

 

[ceydababy]

this is great and definately works and as good if not better than anything ive worked on so far, nothing 100% i know but i still need to find a way to reduce my risk, i keep getting caught on 2,3,4,5 leg divergences taking every entry like you suggest nkruger, but i feel we can narrow entries down further still to bump up overall winning ratio to something like 80+ %, any one got any ideas on how to fine tune the entries?, i hear multiple timeframes by some?, im using only two timeframes so far.

Jay I find the pullback on the 30 tick works extremely well. Hitting the FTSE I sometimes have 3 points of exposure. Pullbacks really work, it can be a bugger when there is no pullback and you see it running off in to the sunset while you are sat there watching it. However, it works more often than it doesn't and gives you an EXTREMELY good entry. As I said in my earlier post DISCRETION ADVISED

 

[nkruger]

this is great and definately works and as good if not better than anything ive worked on so far, nothing 100% i know but i still need to find a way to reduce my risk, i keep getting caught on 2,3,4,5 leg divergences taking every entry like you suggest nkruger, but i feel we can narrow entries down further still to bump up overall winning ratio to something like 80+ %, any one got any ideas on how to fine tune the entries?, i hear multiple timeframes by some?, im using only two timeframes so far.

Just take divergences from a higher timeframe ~ but use the lower (faster) timeframe for entries.

 

[jayjay121]

Just take divergences from a higher timeframe ~ but use the lower (faster) timeframe for entries.

yes, ill try that in todays trading, simple ideas yet i did not think of it, and im so glad i started this thread because already the methods and ideas have been brilliant and im sure its gonna help me loads.

ceydababy can i ask what your r/r is? on every trade or does it differ?, and what is your overall winning ratio? as this is what i need to work on getting right if im going to be consistently profitable? thanks

 

[nkruger]

yes, ill try that in todays trading, simple ideas yet i did not think of it, and im so glad i started this thread because already the methods and ideas have been brilliant and im sure its gonna help me loads.

Jayjay ~ try this:

I've stopped trading for the day, after far exceeding my target by just after 9am this morning, so I've been playing around with charts, as the weather has taken a turn for the worse and I'm staying in now.

Have a look at the cash Euro$ for this morning, the 99 tick and 21 tick charts.

There are nice safe divergence signals on the 99 chart at 5:59, 7:43, 9:43 and 10:39. Now look on the 21 tick chart and you'll find 3 out of those 4 trades are signalled there as well. So take those 3 safe trades that show on both charts. (100 odd pips total)

Just an idea for you. Play around with different timeframes.

 

[jayjay121]

Jayjay ~ try this:

I've stopped trading for the day, after far exceeding my target by just after 9am this morning, so I've been playing around with charts, as the weather has taken a turn for the worse and I'm staying in now.

Have a look at the cash Euro$ for this morning, the 99 tick and 21 tick charts.

There are nice safe divergence signals on the 99 chart at 5:59, 7:43, 9:43 and 10:39. Now look on the 21 tick chart and you'll find 3 out of those 4 trades are signalled there as well. So take those 3 safe trades that show on both charts. (100 odd pips total)

Just an idea. Play around with different timeframes.

nice one, yeah i see it just looking at it now

 

[ftse1001]

Jay I find the pullback on the 30 tick works extremely well. Hitting the FTSE I sometimes have 3 points of exposure. Pullbacks really work, it can be a bugger when there is no pullback and you see it running off in to the sunset while you are sat there watching it. However, it works more often than it doesn't and gives you an EXTREMELY good entry. As I said in my earlier post DISCRETION ADVISED

Agree with you there. Good trading tip, pull backs work without divergences as well.

Mark.

 

[fibonelli]

An example of many divergences appearing on the 1hr DJIA ETF

 

[ceydababy]

yes, ill try that in todays trading, simple ideas yet i did not think of it, and im so glad i started this thread because already the methods and ideas have been brilliant and im sure its gonna help me loads.

ceydababy can i ask what your r/r is? on every trade or does it differ?, and what is your overall winning ratio? as this is what i need to work on getting right if im going to be consistently profitable? thanks

Hi Jay,

Risk reward is about 2:1. On FTSE I am risking normally 3-5 points with a 10 point target. The KEY to getting this RRR is keeping that stop tight, I find it can only really be acheived getting in on that 30tick pullback.

I haven't really got exact statistics of success rate. However, the LINE divergance is far more solid and would estimate without exageration an 80-90% Break even/profit hit rate with 10-20% not working out.

On the Histogram Divergance setup using a 1min and 30tick chart only I am getting approx 65-75% hit rate. IF I went out a t/f to the 3 min and 1min charts, I get fewer setups but a much higher %rate of winners. So it's horses for courses.

I do try and employ strict rules. IF the trade goes 5 or more in profit and pulls back get out flat and try a re-entry, this helps boost up the hit rate that included break even trades.

Like anything, if you have strict rules on managing losers, with a robust setup the profit should follow.

 

[ceydababy]

Agree with you there. Good trading tip, pull backs work without divergences as well.

Mark.

Yes totally agree. Used to follow a similar setup to the chicago floor trader method. Pullbacks RULE

 

[jayjay121]

Hi Jay,

Risk reward is about 2:1. On FTSE I am risking normally 3-5 points with a 10 point target. The KEY to getting this RRR is keeping that stop tight, I find it can only really be acheived getting in on that 30tick pullback.

I haven't really got exact statistics of success rate. However, the LINE divergance is far more solid and would estimate without exageration an 80-90% Break even/profit hit rate with 10-20% not working out.

On the Histogram Divergance setup using a 1min and 30tick chart only I am getting approx 65-75% hit rate. IF I went out a t/f to the 3 min and 1min charts, I get fewer setups but a much higher %rate of winners. So it's horses for courses.

I do try and employ strict rules. IF the trade goes 5 or more in profit and pulls back get out flat and try a re-entry, this helps boost up the hit rate that included break even trades.

Like anything, if you have strict rules on managing losers, with a robust setup the profit should follow.

i do like your scratch trade rule and then you re enter, i must admit i've been moving my stop to stay in the trade, was caught out badly doing this yesterday and actually just lost the plot a bit and moved it twice to stay in the trade, i eventually made my small profit but i felt emotionally it was not worth it and it kind of got me off track with the markets, i found myself wishing and hoping instead of keeping objective....... I've come to the conclusion its no good moving your stop to stay in the trade, even if it ends up being a winner, best to stay with strict rules and can also re enter like you say.

You use 3 min and 30 tick, well i use a 610 tick chart (around 5 min) and a 20 tick chart.....so quite similar................Looking at my charts and oscilator the average range on the er2 up and down from my oscilator would not get me 10 ticks profit like you get, it would end up turning before hand if u know what i mean..........im getting 2 ticks profit from a 20 tick chart with a 2-4 tick stop loss and from a 610 chart im getting 6-10 ticks profit from a 10-12 tick stop loss depending on the pivots as this determines where my stop goes.............i think maybe my indicator does not give enough signals or needs adjusting as im clearly not able to achieve the r/r you do, infact mine is below 1/1 but my entries i must say are normally good and don't give up too much.

anyway thanks for the post and can i make it with a r/r below 1/1 in your opinion? Would you feel comfortable with that?, or do i have to improve this?

 

[jayjay121]

by the way, i feel scalping or swing scalping is best with this method, longer term divegences work well and just as good and more profit potential but the thing with longer term you are exposed to the market for longer periods therefore could be affected by un expected news etc. I think scalping or swing scalping like you guys are doing is the best policy as we are less exposed to news therefore more technical and lose less if we are wrong.

what do you think?

 

[nkruger]

I always designed my divergence system to be in and oooout quite quickly (small targets, but quite a lot of them) although it can be used for long term, as you say. It depends how you want to trade the markets and what time frame you're comfortable with.

After I've bagged my daily target (and if I don't feel like calling it a day at that point) I will switch to a bit longer term and hang onto the trades to see if I can get a 20 or 30 pipper, but still closing it down if it goes to B/E. I'll use a 99 tick chart as well as my normal ones.

 

[sc.david]

hi all, i'm new to the forum, and this is my first thread...reading and posting....i want to greet you all..i want to know, what indicator is best used to spot out divergences and convergences on forex..thanks.
Sc.david.

 

[nkruger]

hi all, i'm new to the forum, and this is my first thread...reading and posting....i want to greet you all..i want to know, what indicator is best used to spot out divergences and convergences on forex..thanks.
Sc.david.

Welcome, hope you find what you're looking for on T2W. I'm sure you will, just keep reading, there's months and months worth here

The most popular indicators for divergence are RSi & MACD. You can you use Stochastic as well. Have a play around with different ones in different timeframes and see what you come up with. Make it your own and get used to trading it.

Good luck.