Divergence Trade Thread

I thought it might be a good idea to start a thread with some of my divergence trades to stimulate some discussion on divergence. There appears to be some interest in this lately and it seems appropriate. I do not want to keep an actual journal, as I have done this before.

My goal here is interact with divergence traders. Not to simply publish what I am doing.

I am hoping to compliment the recent posting by no_pm_please. I want to start a trend (no pun intended) here at ET. Let's openly discuss what we are doing. Answer questions, ask questions intelligently. Maybe this will help some formulate their own divergence methods. Let's try to compare this method to NPP's method and learn from them both.

I incorporate a lot of discretion in my trades. I will discuss the reasoning behind the trades and welcome comments on them. Good or constructive. No petty stuff allowed here. I will not respond to anything that I feel is inappropriate. If you do not have an interest in divergence, please move on without any negative comments. Lot's of other good places to explore.

I will do my best to post the trade as close to real time as I am able. If I can not do this, I will not post the trade.

I would like to invite others to start similar threads on their methods. I know many of you trade a divergence based system or are interested in learning more. Why are there so few documented divergence methods here at ET?

I am not afraid to post a losing trade. It's a business risk. I hope we all learn from it and reduce our risk. There will be losers here. Hopefully, more winners than losers.

I will not post P&L of this method as I did before in my journal "Chronicles of an Idiot". I will summarize each trade individually and post charts with the trades.

Since this is not a journal, I will not post every day. I do not trade everyday.

Hope this makes sense.

VisionTrader

 

Double Tops and Double Bottoms.
Strong Trend Days we will discuss.

I will mainly post trades using a 5M chart.

Trades may be posted, discussion may surround, and discretion may be used based divergence on the following charts.

8M - 13M - 21M -34M - 55M - 89M - 144M - 233M - Daily

Trades will be posted for the emini DOW and S&P. If a set up occurs on both simultaneously, I will choose one.

I look for set ups based on divergence based on price ( DT and DB) and two indicators. Stochastic and MACD. For convenience, I have included NPP's Chaikin and ADX at the bottom of my charts. We can make some correlations and maybe I can improve my method with your help.

I use candles. Bars will work fine. Occassionally I will make a decision based on a doji, esp on a longer time frame chart. I will also make entries based on candle colors at times.

Stochastic - Plotted directly on the price candles. Only %D is plotted. 5, 5, 2.

MACD - Only signal line is plotted. Subgraph 2. Setting is 4, 13,1.

Keltner - 21 Period (Open + High + Low + Close) / 4.
Deviation 2.5

I use this channel mainly for exit points.

Data on the 5M is 7AM - 5PM exchange time.

Here is what my chart looks like. Made it white for easier use in this thread.

 

Double Top and Double Bottom

S&P - Technical Excepted when price is within .5 pts.
DOW - Technical Excepted when price is within 5 pts.

Price can extend beyond a DT or DB as far as it wants as long as indicators diverge and other conditions are favorable.

Stops and TP will be discussed on each trade. Feel free to employ your own trade management skills.

 

Take a look at my MACD and compare it to the Chaikin. I think the similarity is interesting. (On above chart)

Chaikin Oscillator
The Chaikin Oscillator compares a slow exponential moving average and a fast exponential average of the Accumulation Distribution. This indicator is considered a sensitive intraday measure of volume relative to price action. The Chaikin Oscillator identifies divergences between a market's price activity and the oscillator.

 

I am not familiar with the Pulsescan indicator. You will not be impressed by my knowledge of indicators. Can you explain it in 1000 words or less.

 

Hey Vision,

I notice you are using Fib numbers for your charts. Have you ever tried using tick charts, and use the Fib numbers for the number of ticks?

On the ES I use 233 ticks, and it works somewhat like a 2-3 min chart. To me it seems more 'natural' to break the data up in those segments than the somewhat artifical construction of minutes.

I'm interested to hear your thoughts on this.

Cheer,

kp

 

I am big on Fibs. Don't ask me to explain it. Nature can't, but she uses it every day. I used to trade FOREX and used Fib retracements as part of my strategy. I find it interesting that there is very little Fib discussion here at ET.

I would like you to tell me what you feel a tick represents?

I have always leaned to price vs time instead of price vs transaction.

What tick count do you feel represents a 5M chart?

 

I love Fib numbers, although I haven't made much money with 'em. I just like the math. But, it is UNCANNY how they work in the markets.

The 5 min chart is somewhere between the 233 and 610 tick charts. I have a workspace with both, which I refer to frequently. Obviously, if you want more action, then the 89 or 144 chart will give it to you.

It seems to me that because we are analyzing market flow, the analysis should be based on transactions and not an artificial arbitrary construct such as time. I think the use of Fib numbers seeks to make visible the natural/internal structure of the market, and therfore time would work to skew that because it's not a 'natural' segment.

I think a tick/transaction represents the most natural and basic element in the market, so when we count ticks and plot them in Fib number groups/charts it may be more revealing than counting time in Fib number groups.

Don't take me too seriously, though. This is just an idea and I am speaking theoretically. I do use Fib based moving averages on Fib based tick charts, and they are great. When I saw your times for the divergence charts, I just though, 'hey maybe this would work for divergence trades as well.'

Cheer,

kp

 

I might add that I use the 21 tick chart for the YM. I trade support and resistance on it, and it moves about the same sped as the 144 tick chart on the ES.

The charts I mentioned in my previous post are all ES charts.

Cheer,

kp

 

I don't think there is any fundamental advantage of MACD over Chaikin or MACD over stochastics or vice versa. None of them will catch all relevant tops or bottoms and they are best used in conjunction with other tools if possible. Indicators are only tools and it is how you use them that makes all the difference. Your experience in using them can be as important as the very indicators you talk about.