Divergence Without Indicator

[Pipsaholic]

Hi,

Is it possible to know divergance through pure price action without using any indicators?

Thanks.

 

[Barramundi]

With practice or familiarity, I'd say yes.

 

[bbmac]

If you are referring to the divergence can exist between price and momentum indicators, then yes candlesticks can give clues as to a slowing in momentum of prevailing price action direction but for divergence to exist price action has to be diverged from something - ie for eg a momentum indicator. In this example whilst price may be making new hi's/lo's the momentum indicator may not - thus suggesting that there may be a slowing of price momentum sufficient perhaps for the opposing bears/bulls to cause an imbalance in supply/demand and see price reverse (howsoever temporarily.)

Be aware though - there is divergence and then there is divergence - ie not all divergence is created the same ! - this is a seperate point.

G/L

Hi,

Is it possible to know divergance through pure price action without using any indicators?

Thanks.

 

[the hare]

Thats actually an interesting and intelligent question.

I would say yes, although maybe not with 100% accuracy, I'd also say that many divergence traders would probably place more weight on price action and level than a signal being 100% technically divergent. IIRC some traders / authors grade the quality of the divergence set up, considering some set ups to be divergent although they strictly arnt (maybe price doesnt quite make a higher high etc).

I'd also say that if I'm trading this way, I'll usually be looking at price, and the divergence is a confirmation, and usually on the occassions that I look for it, it usually there (or nearly there), which opens up another can of worms

best source of info on this stuff at the zoo, is bbmac. If you want to trade divergence (or even if you dont), check out his various threads, they are absolute gems.

 

[MoonRocket]

Good question that got me thinking and I would say yes. Without knowing it I think I have traded such divergences.
Take a 15 min. candlestick chart and on a second run up, say an hour later to a potential breakout,
the candles break the previous high and it may do it a couple of times but retreat and leave tails that are higher then the previous high but
the bodies are lower then the bodies of the previous attempt. I would call this a divergence and go short. Although until now, I had never thought of it as a divergence. So thanks.

 

[jpadventure]

Candles show support / resistance and is different from divergence. It's hidden from price action like volume is, a large candle doesn't mean large volume, a candle reversal doesn't mean divergence.

 

[bbmac]

The term divergence is oft misused and misunderstood. For divergence to be present price action has to be diverged from something, ie an indicator reading for eg. For example oscillators essentially measure momentum (although they have derived other uses over the years.) If price action is diverged from an oscillator it indicates that there may be a slowing of the momentum of the prevailing price action/direction. For a trader to incorporate oscillator divergence (as the example) into his trading plan he should first of all know how that oscillator calculates and once that makes sense to him and he agrees with the underlying calculation as a measure of momentum (for eg) is derived and be satisfied that such a calculation does make sense.

Generally the more t/f's that are showing price is diverged from the oscillator (s) the more reliable the indication that prevailing price action/direction momentum may be slowing might be.

It follows that if the momentum of a prevailing price action/direction may be slowing/lessening then it may become easier for the opposing orders/players to overwhelm that direction thus causing a change in direction (a swing point) howsoever temporarilly,) should then exist in sufficient numbers/volumes. Where is there most likely to be such a reaction - and potential imbalance of supply over demand /demand over supply ? At potential support/resistance.

G/L

 

[counter_violent]

The term divergence is oft misused and misunderstood. For divergence to be present price action has to be diverged from something, ie an indicator reading for eg. For example oscillators essentially measure momentum (although they have derived other uses over the years.) If price action is diverged from an oscillator it indicates that there may be a slowing of the momentum of the prevailing price action/direction. For a trader to incorporate oscillator divergence (as the example) into his trading plan he should first of all know how that oscillator calculates and once that makes sense to him and he agrees with the underlying calculation as a measure of momentum (for eg) is derived and be satisfied that such a calculation does make sense.

Generally the more t/f's that are showing price is diverged from the oscillator (s) the more reliable the indication that prevailing price action/direction momentum may be slowing might be.

It follows that if the momentum of a prevailing price action/direction may be slowing/lessening then it may become easier for the opposing orders/players to overwhelm that direction thus causing a change in direction (a swing point) howsoever temporarilly,) should then exist in sufficient numbers/volumes. Where is there most likely to be such a reaction - and potential imbalance of supply over demand /demand over supply ? At potential support/resistance.

G/L

Ironically, once the trader understands the price action that shows the make up of the divergence, he will no longer need the indicator!

However, trading it is a whole other subject.

 

[the hare]

For divergence to be present price action has to be diverged from something.

I know what you mean, but this is the TA equivelent of "If a tree falls in the forest and no one hears it, does it make a sound?" argument

If divergence is present on your chart with your chosen oscillator, does this mean that divergence is somehow absent on my chart simply because I didnt use the same oscillator ? or I used different oscillator settings ?

I suppose strictly you might say yes there is divergence between indicator G with settings x,y and z , but in practical terms, we'd still be observng exactly the same thing, you would see divergence, and I would not.

I assumed that the OP was asking is it possible to observe the reduction in momentum at the HH/LL purely through observation of price action.

 

[counter_violent]

Hi,

Is it possible to know divergence through pure price action without using any indicators?

Thanks.

The scale of move is very different between chart1 (21/11/08) 600 points and chart 2 (10/02/12) 74 points, but the price action is all but identical. The job of the trader being to recognise the advanced clues and then to manage and capitalise on the subsequent price action.

Wheras bbmac would reference price divergence to something (indicator), I would reference price with something (time). The more volatility, the easier it is to recognise the favourable condition. However, the more volatility, the harder it is to time and manage the trade without being shaken out.

In the final analysis, price and time are the most important elements that a trader can study.

chart1 and trade call posted in beat the broker thread 2008, chart2 posted yesterday in anyone confident enough to post 10 trades thread 2012.

 

[counter_violent]

I assumed that the OP was asking is it possible to observe the reduction in momentum at the HH/LL purely through observation of price action.

Reduction in momentum is only half of the story. What about the other side of the equation?

 

[ChocolateDigestive]

The scale of move is very different between chart1 (21/11/08) 600 points and chart 2 (10/02/12) 74 points, but the price action is all but identical. The job of the trader being to recognise the advanced clues and then to manage and capitalise on the subsequent price action.

Wheras bbmac would reference price divergence to something (indicator), I would reference price with something (time). The more volatility, the easier it is to recognise the favourable condition. However, the more volatility, the harder it is to time and manage the trade without being shaken out.

In the final analysis, price and time are the most important elements that a trader can study.

chart1 and trade call posted in beat the broker thread 2008, chart2 posted yesterday in anyone confident enough to post 10 trades thread 2012.

classic stop running in the yellow and red boxes CV. Were you tracking the volume traded?

 

[counter_violent]

classic stop running in the yellow and red boxes CV. Were you tracking the volume traded?

Is that milk or plain volume?

Nah, no interest in volume as I can detect what I want to see without it.

 

[bbmac]

Hi mate

I agree that '...trading it is a whole other subject...' and like most things technical (an life itself) itg is about repeating patterns on the settings you choose and t/f's of interest in using divergnec to give an edge/part of an edge - both regular and hidden.

I'm not sure that PA does always show the make up of the div though ?

G/L

Ironically, once the trader understands the price action that shows the make up of the divergence, he will no longer need the indicator!

However, trading it is a whole other subject.

 

[bbmac]

I will respond by annotating the points in your post below, as under;

a. If price divergence from a momentum oscillator (to continue the eg) shows that there may be a sloing of prevailing pa in that direction then momentum is either slowing or it is not period. Whether a chosen oscillator on a chosen t/f shows that doesn't mean to say that it is not there if it doesd not, just that that oscillator on that t/f on those settings may or may not.

b. see above.

c. I agree that was the crux of the OP's question and my experience/observation is that this may not always be possible with just PA. Price Momentum is Price momentum and even volume etc may not give a heads up to a possible diminishing/easing of it.

G/L

I know what you mean, but this is the TA equivelent of "If a tree falls in the forest and no one hears it, does it make a sound?" argument

a. If divergence is present on your chart with your chosen oscillator, does this mean that divergence is somehow absent on my chart simply because I didnt use the same oscillator ? or I used different oscillator settings ?

b. I suppose strictly you might say yes there is divergence between indicator G with settings x,y and z , but in practical terms, we'd still be observng exactly the same thing, you would see divergence, and I would not.

c. I assumed that the OP was asking is it possible to observe the reduction in momentum at the HH/LL purely through observation of price action.

 

[bbmac]

Re points made in my posts above, look at current near-term hr screenshot as Friday's close re gbpusd cash...the last 1hr candle at the low (very bearish) gave no indication that repeating patterns of regular bullish divergence existed from 1min to 30min t/f that those on those lower t/f's would have seen as price tested the very bottom of a previous 1hr/4hr/minor daily swing lo confluence with 38.2% 5528-5927 = potential support. The only clue on this 1hr t/f is that there were clearly buyers ' in the vicinity ' of this potential support - at points a and b.

Just an opinion and for the avoidance of doubt I am not saying thatI think price will continue to rally from this low especially just beacuse there are repeating patterns of regular bullish div (some better than others) on t/f's from 1min - 30min on my momentum oscillators of choice/settings of choice/t/f's of choice...but at the same I'm not saying it won't either - I can't predict the future !

as an eg a repeating pattern of regular bullish divergence is here on the 1min at that low discussed above and a nice bullish thrust engulfing candle resulted from the demand as a trigger into a long up from that potential support.

G/L

 

[VielGeld]

I assumed that the OP was asking is it possible to observe the reduction in momentum at the HH/LL purely through observation of price action.

Yes -- I personally see and use it every trading session.

However, it takes experience to properly interpret it. It's not just because momentum is slowing that price will not continue in that direction. It might have just a little bit more to go before "diverging" for real (I call it a reversal, but wtv.).