Divergence Traders - When to Enter

Give the same price action to several different divergence traders, let them apply their favorite indicators to the price action, and you will see different degrees of divergence and actual entry areas.

Attached is the 1m ES from 10-31. It of course has my favorite indicators applied, but I am curious where divergence traders would actually enter (assuming you would enter) based on my or your signals. I've put A,B,C,D,E labels to reference general areas.

After the Hammerlike candle at C, I waited for a break above this candle and entered at D.


What I hope to get out of this tread is more discussion on entry after a divergence occurs. Not just discussion on the example given. I am curious what divergence traders use to decide to enter OR NOT after they see their divergence.

 

Enter on second or third divergence, on break of high of lowest volume bar.

 

It is almost impossible to unbias the mind after seeing the outcome, but I think this is how it would have gone for me...

Long just after A, shaken out at C even tho the MACD was not confirming the low. Long again at D b/c of the second divergence, kicking myself halfway b/t D and E, and by 11:00 I would be saying it's Friday, and what the heck am I doing trading the 1 min ES anyway? So I would sell my 50 cars during the sideways move.

 

I find divergence trades quite reliable except in trending markets. Attached is a 2 min ES chart showing some divergence trades that were automatically signaled by a metastock expert I created.

Basically simultaneous divergences are looked for between price and an A/D oscillator, stochastics and one other common indicator. You can see how well the trades would have worked out taking these signals late Thursday afternoon through Friday.

Unfortunately, the signals don't look this good most the time. (I just squeezed as much data back from Friday's close as I could and still make the data readable)

http://www.profitbooks.com/trading/divergence.jpg

Wally

 

Without any indicators at all I would have entered this pattern on the breakout of the E area

 

You could check out the rules in the excellent divergence system posted in this thread:

http://www.elitetrader.com/vb/showthread.php?s=&threadid=20761

 

Yep. Saw that thread.

 

I would have entered during the "up candle" at "A" probably in the 1047.50 to 1047.75 price area. At "A" we have two identical candles, the first candle shows price drop and the second candle shows price pop. For me I had 1046.50 that day as a key area of "Support". The failure to push down to this level and hit 1046.50 with a large increase in volume on the "down candle" over the previous candle at "A" shows good support in this area. Now on the second candle at "A" as the price is increasing away from the 1047 area and there is no price action penetrating below the low of the previous candle I would have to enter LONG as the price action moves north. For this LONG as with most of my trades I would go for +1.5 pts for a profit target at 1049, and a STOP at 1046 just below the support level I had at 1046.50 for that day. So in the end I would have a +1.5 pt minimum profit target with a stop at -1.5 pts if I could get an entry price at 1047.50 (the price level for the lower part of the first down candle body at "A").

 

AMT4SWA

Do find the Redbar/Greenbar that is in this example occurring a lot for signals ?

Also, what determined your support at 1046.50 ?

 

Also, of further note, both "A" and "D" areas have nice (big hint) candles that are called "bullish kickbacks". After these candles had closed (formed), these would also be good areas for a LONG entry for those who are more cautious or needing more confirmation of a change in price trend.