I use it all the time when market test support or resistance levels and this is how I use it: with stochastics 15,5,3 yesterday's low 1020.50 today 9/10/2003 around 1:15PM New York time on one minute time frame market comes close to yesterday's low (first confirmation of resistance) 1019.75 stochastics make lower high (second clue) on 15 min time frame we hit 222 SMA (third confirmation of resistance) market trades below open and below pivot point (clue 4 and 5) and finally big red candle on 15 min time frame breaking down below 20 and 5 SMA's so I take short on the candle close at 1017.25 with stop loss above 20 sma on 15 min time frame. But today was an exceptionally good day.
First time ever Tea, I totally disagree with you! The indicators themselves are crap, let alone caring about how they diverge against price. With retracements yes I agree, placement and circumstance are clearly paramount. However there is a repeating natural order to market structure. The subtrend or counter trend within the bigger picture can be found, although not always apparently. This talk about divergences may impress those who haven't been in the game or spellbind those who know little about technical analysis but to serious traders it's akin to an astrologer talking to a psychologist.
PABST I honor your beliefs. I have been around. I believein them. Read Technical Analysis for the Trading Professional by Constance Brown. There are some scientific studies there. My work was a offshoot of Larry Willaims charts for a long time ago. There are so many traders that use divergence successfully. Your attitude limits your potential and divergences of course are not required to trade succesfully. And for newbies they may mess them up until the method is mastered. Like anything. Lets see your chart and setups you use...please Profitable Trading to all NQoos
http://www.nqoos.com/Bonds_3min_090803_FloorTraderMethod.htm http://www.nqoos.com/FloorTraderMethodExamples.htm Profitable Trading to all NQoos
Ouch! I better have another drink. I won't try to dissuade you as I don't need the competition. All I will say is that IMHO a proper divergence play is a counter-trend move that occurs about 25% of the time after a swing is completed. It should not be the main play in a short timeframe as some of these vendors sell at the trade shows. Divergences on minute charts either are impossible to trade (though very noticeable in retrospect) or they get battered about by larger timeframe cycles and trends. If I were a new trader I would master support and resistance and retracement plays first. Only after I graduated from a grasshopper to (whatever grasshoppers become) would I mess with divergences.
Divergence is not a magic out of no-where, it is a pattern of price action. 1. When will a divergence occur? There is a regular divergence for a drift with trend; There is a reverse divergence for a drift against trend; and even more: <b>Any</b> regular divergence must be a drift with trend if a suitable higher time frame is used. <b>Most</b> reverse divergences are drifts against trend if a suitable higher time frame is used. 2. What is the consequence of divergence? When a drift is with the trend, the trend will likely reverse; When a drift is against the trend, the trend will likely resume; so A regular divergence means the trend likely to reverse (<b>but be aware of the degree</b>); A reverse divergence means the trend likely to resume; 3. What is drift? Drift is a pattern for which price is restricted in a slightly-slanted channel with non-increasing pivot distances. Drift can a flag, pennant, wedge and triangle. 4. Why so much divergence? For 30% time, market is in trend mode; For 70% time, market is in trading mode; So For 30% time, market is in impulse move; For 70% time, market is in drift move; So For 30% time, market is likely to haveno divergence; For 70% time, market is likely to have divergence (either regular or reverse divergence). 5. Any role of indicator here? It would be better if one can identify divergence just from naked price chart. In fact, it is very easy. Nearly all oscillating-type indicators are either the differences or normalized differences, thus very sensitive to the price change, and are good for spotting divergence. Following this line, one can construct infinite indicators that are much sensitive to divegence by just taking higher order difference. 6. Why one indicator shows divergence but others not? As just said in 5, nearly all indicators are detrended prices, but meanwhile they are filtered de-trended prices. Due to the filtering property, each indicator has a cut-off frequence range. Thus, different indicators have different sentivity to the price change. For example, CCI is non-smoothed de-trended price, the high-frequent components of prices are kept, so it is very sensitive to the price change, while MACD(12, 26, 9) is a smoothed de-trended prices, so it is not sensitive to the change in high-frequent components. So it maybe the case that there is a divergence in CCI, but not in MACD. 7. Why divergence appear on so many time frame/for so many indicators/with so many different setting? Market is a self-similar fractal: a feature exists in all scales. 8. How to use divergence in trading? Use it as a warning sigh; Use it with the trend.
No offence, nqoos, but that chart gives me headache. I wouldn't recommend it to any newbie to start off with. I consider myself to have just past the newbie-stage. Speaking from my own experience i had an irresistable urge to trade against the trend and attempted divergences endlessly. Best i could do was BE and getting ripped to pieces when i wasn't fully concentrated. The turnaround came when i started trading a variation on the Jimmer-BB entry. It is so much easier to trade with the trend. Thx to you, Jimmer and Buffy for sharing.
Just a friendly reminder... It's commonplace to talk about entry signals... rarely do traders discuss how to manage the trade after entry... initial stops, trailing stops, profit targets, reversal signals. Simply...traders that spend too much time on the entry while not enough time on the exit... are at a disadvantage regardless if your using indicators or price action only (no indicators). Trade management is KEY. Most likely than not...our trade management is based on how the trader (you and I) interact with the markets. Therefore...most likely...its the trader that determines the success or failure of a trade... not the entry signal. Understanding what to do...how to react when your trade is via a divergence signal takes you into a counter-thrust with hopes of continuing into a new trend will determine how successful divergence is... It's a lot more to this game than just the entry. Also...once again...divergence between price and indicator isn't the only divergence play... price action only traders (no indicators) also use divergence signals. Think outside the box. I took a peek at a few charts here... A few of those charts...via the same divergence signal...there were divergence signals that would have been losers... Yet...they weren't highlighted. Let me say it again...if you concentrate on the entry signal too much... not discussing/analyzing/researching the most important stuff...what occurs after you enter... your going into a fight with one arm tied behind your back. Therefore...read some of the other threads here at ET about stop management, breakouts/breakdowns, reversal signals, price pullbacks, counter-thrusts, continuation patterns et cetera... all dealing with what occurs after the entry... so that you'll have the big picture in your head. Good luck all and good trading today. NihabaAshi
I use qcharts. I asked by PM for the symbol on the stock one I posted elsewhere. Ctrader replied by PM that it was CHRS. It is going to break out next week. I did a chart because he wanted the stops for it. For ES I use intraday. You can see Gordon appreciates my response "nope". His comments were kind of brief. So I posted the chart and what I do. I expected a thanks from him. It looks like he is a flighty person to me at this point. I think that in his psychological thread harry trader pointed out to us that GG is not a concrete type person. I really do not go for divergence among or between differing things (price and indicators, for example) so I just said "nope". I did not know GG was a flighty person so I responded to his "attitude post". Now, I know he is not too deep an individual and he just starts threads; draws the flies we see here who do not know anything but being trollish; and he moves on. Some of the comments about using divergence successfully are fine with me. I can see it works for those people. I also see GG could not use it for many reasons harry trader points out. GG is not in a good place for using any TA it looks like. I am not disappointed in GG. The trolls are trolls. This thread turned out to be a funny one except for the good comments of successful divergence users.