Oscillators and Divergence

Discussion in 'Technical Analysis' started by Joe Ross, Oct 25, 2010.

  1. Is there any time when there is a valid use for oscillators and/or divergence?

    Yes, there is a time when such things may prove to be of value. The opposite of trend-following trading methods involves trading techniques that enter on the tops and bottoms of movements, or counter-trend trading. Oscillator divergences may help accomplish this highest risk type of trading. Having set predetermined time and price objectives that should form below a previous top more than 70% of the time greatly facilitates this kind of trading. Selling short term rallies until intermediate downside price objectives are achieved is the best way to execute this strategy. This is one trading area where oscillators and their divergences are valuable. When you have strong down-trending intermediate markets - look to sell when short term RSI values rebound to hit 50, weaker downtrends hit RSI's of 70 or higher. No system creates more open equity, defines trends, and forecasts the time and price objectives better than the 1-2-3 trading pattern, which may be the first objective pattern recognition system ever created. When the 1-2-3 price objectives are 200%+ over extended, the market is technically due for a correction of the 100% downside minimum value.
     
  2. 1) They "work" when they work. They don't when they don't. :(
    2) You can't give too much leeway to "overextensions". :cool:
     
  3. They work 100% of the time...

    in hindsight

    :p
     
  4. Putting you on ignore is as close to orgasmic as I can get on line.
     
  5. except when they don't :)
     
  6. Joe is discussing two fractals and two aspects of indicators.

    By leaving out parts of each of these four items, he is allowing others to get to the same place as the two posters who responded to his OP.

    With respect to trading it is always a superior idea to have full knowledge of the fractal on each side of your trading fractal.

    With respect to indicators and their signals, these will always apply to at least three fractals simultaineously, if and only if they are tuned to the markets. The defaults of indicators are used for tuning.

    Most indicator that survived were invented long before the PC and the mainframes before PC's.

    Raw data provides the input for generating indicators and their signals.

    Collectively, about 70 degrees of freedom result. The split on this collection genterates half the signals directly from market data and about half from indicators as signal generators.

    At some point a very successful trader has the knowledge to know when any of the 70 degrees of freedom are applicable for decision making as a consequence of thorough and comprehensive analysis. It turns out, at any time 6 to 8 degrees of freedom have utility for precision and scientific analysis, decision making and timely action.

    The most used and best surviving oscillators are "two line" indicators.

    The concept of divergence is best related to the relationship of the two lines. That will probably not be discussed by Joe in the future.

    MACD name came from two characteristics of the two line oscillator. Neither are signals but, rather, each are status or conditions describing the dynamic of markets between signals for taking profit segments.

    Basically the short term weaves within the intermediate term. similarly, the intermediate term weaves within the long term ecomometric outer boundary.

    Traders can trade on any of seven fractals. Slower fractals better represent investing. the ratio of fractal to fractal by the measure of relative movements is 3 to 1. The market dictates this ratio.

    When the status of markets is considered vi a vis Behavioral Finance, what emerges is the status before an event and the status after the event. Thus a triad exists.

    By arranging all the combinations of three things where divergence or convergence are the pre or post items and the event is inside this "sandwich", there are six significant triads.

    The triads have an order of events in the cycle of the markets.

    Finally, this means that the conscious trader is always aware of the answers to the three most pertinent questions of trading:

    1. Where is the market in the cycle?

    2. What is next? and

    3. How fast are events happening in the market cycle?

    A while back there was a method proferred.

    The unfortunate situation was that a mistaken non signal was used as a signal. The system failed and just became one of the 100 most important threads. It was not possible to temper the system and use a bonafide "two line" indicator signal (operator failure).

    See if you can ask yourself: Why isn't the crossover of the neutral (zero horizontal axis of symmetry) of MACD a bonafide trading signal? What would have been the name of MACD if this where a bonafide trading signal?

    Ask yourself what Stochastics means.
     
  7. BSAM

    BSAM

    Oh Jack, go to bed.
     
  8. oraclewizard77

    oraclewizard77 Moderator

    They can be used in combination with other signals to give you greater confidence in the trade or to help keep you out of a trade. By themselves, I don't see them working very well which is probably why there is a backlash against indicators.

    For example, I woke up too late to get into a trade, the indicator I use while not oversold yet could change to indicate an oversold position. So while for example, the market could continue higher, if I went long there, I was basically going to be chasing.

    So instead the better move is to just wait, and set a price alert on when I want to look at the chart again rather than chasing.
     
  9. ammo

    ammo

    joe can u put up an example of your 1- 2 -3 ....200% extended .. mentioned
     
  10. On ES (5 min) and using New York time, the time interval from 8:00am to 10:15 am on the recent 25OCT10.

    This includes the phenomena Joe almost articulated with respect to change of dominance (sentiment) on two adjacent fractals where the 200% was happening.

    Joe doe not, as a rule, post more than initial posts in threads he begins.

    Joe neglected to mention that the oscillators are pinned from one side to the other so signal taking is in the extreme.

    In the example they go from a short extreme...through a major scale change..... to the long exreme. This makes to original short extreme not appear significant after the long side gets pinned. This applies to both lines of a two line indicator.
    It may be that what you are asking for, in terms of indicators, is not a good example.

    Also there are names for these types of set ups in the jargon of CW. Probably searching a few would be a good way to get a set of examples.
     
    #10     Oct 26, 2010