Need help with Divergence trading.

Dec 19, 2017
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Hi!

I am fairly new to trading, I trade WTI Crude Oil and Silver M5/M15 on MCX(India). I initially started with swing trading stocks for about 2 years.

Recently I started trading Silver and Crude Oil, it took no time for me to figure out that commodity trading requires a proper system and rules for trading intra-day. Normal moving averages and stuff isn't going to cut it.

So I came up with a divergence strategy. The strategy requires

Stochastic (5,3,2)
MACD Histogram (just the histogram not the signal lines)
ATR (15) for targets and stops

1. Identify MACD divergence based on histogram either bullish or bearish.
2. Wait for stochastic to crossover in preferred direction based on !, the stochastic must have touched oversold or overbought level on the way, else scrap the opportunity.
3. Enter when stochastic crosses over, and higher high after bullish close or lower low after bearish close is formed.
4. Set SL at 1 X ATR and TG at 2 X ATR

I have been working on this for about a month now I also tried this with RSI (25), the results weer more or less the same, MACD makes it easier to spot divergences and you don't end up comparing ripples for divergences unlike RSI.

Spotting a divergence isn't difficult, but the problem is even if you spot one, it will either whipsaw or just run across your stop.
For example a market moves 10 points up and forms bearish divergence, now the market may retrace just 2 points or may retrace 12 points or run across your stop right away. This part of the strategy is the problem for me especially while determining stops and targets.

Any tips or suggestions for the above strategy?
Any recommendations on indicators, filters or rules for trading divergences?
Any input is welcome. Thanks in Advance.

Happy Trading!
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