Trading 1 minute charts ... blink your eyes and you're in the market ... blink your eyes and you're out. Advice: You can find divergences, support, resistance, setups, setdowns and everything in between; but remember it's on a 1 minute chart.
Although I am unsure about the accuracy of the description provided for the reasons divergence appears, I disagree with the rest of the post, except about using an indicator as a standalone. Velocity... or speed, is the rate of change over time. Velocity as it refers to price then, is the rate of change of price over time. Thus, velocity is derived from price and time. From the quote above, it seems that the poster is saying that information gleaned from price, volume, and time variables is superior to information gleaned from price, volume, and time variables. And the last statement, about divergence disappearing.... I don't understand that. If you mean before the bar has closed there might be a divergence forming only to see the bar reverse direction and then not form a divergence then yes that happens. But once the bar has closed, and the divergence has formed, it stays that way.
Perhaps I am mistaken and naive, but from my limited review of oscillators and divergences some years ago, I arrived at the rather simple conclusion that divergences show little more than double (or multiple) tops and bottoms. Stated differently, it's all in the price action anyway. I will not pretend that my back testing was vigorous and extensive, but from what I saw, the apparent divergence did not add any information value or accuracy. I may be mistaken, but I think that the nature and composition of oscillators lend themselves to meaningless divergences that do not provide additional information. However, I am not a mathematician. From the admittedly limited testing that I have done some years ago on daily data, I have found that treating double (or multiple) tops and bottoms in the same way, irrespective of oscillator divergences, fared no better or worse than using oscillator divergences. Therefore, I do not presently use indicators. Just an opinion. Regards, Thunderdog
It's kinda like I was telling another guy the other day. He wanted to trade Div/Conv setups with his stochastic. I told him he could probably just fade breakouts and get similiar results. From my experience, if I was watching a Dbl top, and say using a 14 period stochastic. The price might make the double top and go straight down, but I would miss it because I didn't get a clear signal on my stochastic. However, if I played around with the stochastic settings, I would eventually find a setting that would show a divergence. Like, maybe an 8 period, or something. Then if I got another Dbl bottom or top, the 8 period didn't give a signal, but an 11 period did. So, I think traders that are making money using an oscillator are doing so, not so much because of the oscillator, but because their sticking to a plan and using the same settings day after day after day...
If your changing indicator settings to fit an indicator to a particular pattern... that may not be an indicator for your trade methodology. Also, an indicator (whatever it is you choose to use)... IS NOT SUPPOSE to call every divergence trade signal. Thus, there are obviously going to be some divergence trade setups your indicator of choice will not catch. Simply, if your using indicators or price action only methods... stick to one. In other words...cherry pick your trades based on something you are going to consistently use. However...bouncing around from one setting to another setting... shouldn't yield good results in my opinion. P.S. I've never tried to use stochastic in a double top situation...is it reliable? I heard its a tough indicator to use for double tops/double bottoms or divergence trade setups. NihabaAshi
I use MACD and MOM and trade only if they agree . It might be overkill for some but I like high win%. I look for div. from 10, 5 and 2 min charts . I min is just too choppy in indexes. Walter
I'll be happy to post the next chart I come across that shows what I mean inandlong. After all, I don't want to start an historic investigation, and I gather neither do you!