are divergences really worth anything?

Discussion in 'Strategy Development' started by Gordon Gekko, Sep 10, 2003.

  1. before i start, divergences are not the meat of my trading. i've just been playing around with them to see if they help.

    anyway, for a while i thought divergences were cool. i'm talking about a divergence between price and some indicator. for example, price makes a higher high, but the indicator makes a lower high. but you can find a divergence at just about any time. you can do this by using multiple indicators or changing the settings of an indicator.

    when you realize that the divergence basically just depends on if you set your CCI to 6, 9, 12, or whatever, does it really mean anything?! sure, sometimes you might make a good trade, but was it really due to a 14, 9, 16 stochastic divergence or something?!?! i kinda doubt it.

    BTW, some people will probably reply saying not to use a divergence ALONE. i already know this. i'm still putting into question if the divergence really means ANYTHING since you can find one at any time by changing indicators or the settings of an indicator.
  2. nope.
  3. Ditch


    Look at the divergences during an average trend, you get fried again and again:p
  4. Ditch


    see chart
  5. GG as u and i know there's people trading with divergences and making money so your question "moot"&^$
  6. lindq


    Personally, I put divergences in the same category as crossing MAs, stochastic pops, reverse-head-and-shoulders and a whole lot of other crap that helps authors fill pages in books, and that gets new traders excited that they can actually see this stuff on a chart. For every occurance of the event that led to profits, there are 10 that didn't. But of course those charts aren't exciting, are they? I've backtested the hell out of countless divergence possibilities in numous timeframes, and never come up with anything that would give me the confidence to bet money on it.
  7. yeah, but is it just a 3rd wheel? i like to eliminate parts of my trading that i don't really need. too much stuff will just confuse/distract me. if divergences don't mean anything, maybe divergence traders would be better off figuring out why they really make money, if indeed they do.
  8. No, but thanks for asking.


  9. izeickl


    Like all methods and systems and ideas, work for some not for others. Blanket statements Yes or No dont help at all. Neither does my "Depends".
  10. Agree...

    Only Ditch made an effort to show a flaw with divergence signals.

    Like anything...nothing is 100% reliable.

    A successful trader knows the strengths and weaknesses of their methodology...

    Simply...they know when to be on the sidelines and not using their methodolgy or when to take profits prior to reaching profit targets or prior to having protective stops hit.

    I'm a hard-core divergence trader for many many many years and one of the weakness of divergence signals is the exit strategy.

    When trading Divergence Signals...

    you need to be extremely careful about your exit strategy (initial stops, trailing stops, reversal signals et cetera).

    It's reversal signals after your entry that concerns me and should be of concern with any Divergence Trader.

    What I mean is this...after your trade entry...based on divergence...

    and the trade moves in your favor (your now profitable)...

    if you get a reversal signal prior to your profit-target being reached...

    prior to your trailing stop being hit...

    To properly manage your trade from start to finish...

    its best you don't ignore those reversal signals and exit all or part of your position to protect those matter how small those profits may be.

    Simply...putting in a stop (initial or trailing) and letting it sit there is half the game when it comes to exit strategies.

    Therefore, when traders write the following...

    Sat in this trade for awhile...I just put my stop in and ignored it...

    Via the above commonplace exit'll be going into a fight with one arm tied behind your back.

    Another important aspect with divergence signals...

    you must be able to recognize a weak trend, strong trend or an exhaustive trend...

    (Japanese Candlesticks can help)

    Simply...divergence traders get murdered in strong trends...prices move in your favor after entry just a tiny little bit...suddenly...

    there's another parabolic move and your stopped out for a loss or worse if your not using stops or trading via the seat of your pants.

    Regardless how this thread started...

    You must use some sort'uv confirmation signal (another indicator or index) to confirm your divergence signals.

    (Note: I use either Advance Decline Line, Market Volatility Index VIX or the NYSE Up Down Ratio TICK for my confirmation)

    Trading divergence via price and one indicator only or testing divergence via price and one indicator only...

    is useless work in my opinion.

    #10     Sep 10, 2003