Non-trend and choppy days would be better for divergence setups since they will usually produce much more direction changes than trend days. Divergence is one of the setups I trade. Unfortunately, I mistakenly dismissed some of the good signals today so I didn't end up with much green
BTW, if you look back at the time you tested the system here in this journal, you will see many non-trend days or days where the daily trend changed various time.
Hi, I am new to this thread , even though I have just read 108 posts!I thought I would jump in and give my two cents worth! I have traded divergences for a long time and from my experience , I haven't heard you mention the most important thing!The most important thing that I've found, especially if you are just trading off just 1 time frame are LEVELS! Since the majority of these are countertrend on the time frame you are trading off of, you need some reason for the market to stop at the point you are buying/selling! The most reliable are yesterdays High and Low .If the market comes up and tests yesterdays high with divergence, SELL IT!.If the market tests yesterdays high from above with divergence,BUY IT!.Other levels that are important are major Swing Highs/Swing Lows.If price retraces down to a major Swing high pivot, with divergence buy it! These are really powerful when mixed with Fibbonacci levels, and/or floor trader levels.As mentioned in the thread, many times you will get a longer time frame (3 min for example) in a uptrend and have two pushes down with divergence on the one minute! This is what Linda Raschke calls her "Power Buy" its an extra strong signal, because it has two time frames behind it.The advantage to trading in the direction of a larger time frame is that you time the trade off the 1 min , but there is the three min profit potential in it! Other things to watch are the Tick.But the tick changes its values dependent upon the breath!More useful as a longterm market gauge is the trin.It is useful at extremes to tell you which side to be on , or if it is in the middle of it's range, you know nothing is going on! Today(7/31/01)The market moved up , but then dropped on news.It came down(exactly) to close the gap up from yesterdays close.Everyone was thinking it shot up and then came down, it must be bearish!The trin was screaming at 40!( Anything below 50 is considered extremely bullish ,and anything above 120 is considered extremely bearish ( might want to move the level to 150 +now) and not moving! With a trin at 40 , under no circumstances should you be selling!!!!Look for buy points! And then the market rocketed higher.How often does the trin get to extremes?( only a couple of times a week)If it is in the middle , you are left to other devices, or don't trade at all. loved the thread thanks for sharing everything with us!
Good points, a friend of mine who is my mentor stresses them too. He also has a special power setup to trade divergences that makes money some 70% of the time. Obviously, when you have a setup like that you don't write about it in the books.
On strong trend days there are simply no divergences to trade since price is going mostly in one direction and only retracts with no real major counter moves. On such days there are other kinds of setups to trade. You might want to try to hop on the trend (what was the name you gave it?). I try to keep a variety of trades for all kinds of days. One of the hardest tasks is to recognize the kind of day it's going to be as early as possible. This is basically what I'm working on now. TM Trader
Obviously, if you trade divergences countertrend you will get your head handed to you!(usually in a nice little basket!) That is why you have to watch a longer term chart( 3 or 5 vs. 1) Best setup , 3 min Uptrend, and 1 min in down trend, two or three (even better) pushes down on 1 min , while three min stays in a uptrend! These usually only happen strong on trend days!
TimW, You make some very good points. Divergences are a good tool, but one of the pitfalls is they tend to get you oriented counter-trend at times. Intraday TRIN can keep you out of a lot of trouble, as you suggest.