I use MACD to find Divergence, here it is much more reliable. I am not entering on crossovers etc but using it too suggest a change in the market direction. (in the cace of Regular Divergence) or a continuation of a trend (Hidden Divergence) Please see chart. For me the high formed by the inverted hammer is a signal, also we have a loose treble top, obvious resistance at this level. I like to see more confirmation and the first break lower pulls back but cannot retest the high, this is my entry. Although it is not trully trnding up there is a general up trend later in the day, for me the pin formed and Hidden Divergence is a good exit and even switch too long. Factor in Support and resistance levels and Divergence is a great tool with MACD
I use both Stochastic and MACD (the histogram) to find divergences and enter when the DMI (+DM -DM) crosses and hold until a sign of weakness occur.
The MACD is a lagging indicator, when there is a crossover, it is usually to late the movement has already happened. I do however have set up my charts to use the MACD histogram and 2 line charts however, I also use RSI, which shows oversold, undersold etc. Along with slow Stochastics With the MACD I do watch for the lines, at least to draw closer, in combo with the histogram. When all indicators show a buy signal I am in! I think the combination is very good, I have been backtesting for a while, it appears reasonably accurate. I use Stochastics as primary, and the other indicators to confirm. All can give false signals, but rarely all at the same time! BTW, I daytrade only, using 1 minute, 333 tick charts, also longer to confirm 5, 15 minutes etc.
I know indicators are not the holy grail, or we would all be rich, I can't see how someone can daytrade with a line chart and make decisions, regarding entry and exit points. I think a combination of Stochastics (slow) or Stoch RSI?? Combined with volume, MACD Histogram, is probably best? RSI also, remember intraday trading!! I don't care what the stock will do tomorrow, I care what it will do in the next 15 minutes, maybe 5 or even 1 minute. If I can be right 75% of the time, and keep to my stops, I'm happy. If all the indicators point to the same conclusion, I think I have a better chance of being right. Also it helps to know your stock, and how it reacts to the market. Anyone else?? I appreciate the comments! Whats been working for you successful daytraders?
IMHO, if your stops are shallower than your profit targets, and you find your "edge", you can be right 50% of the time and do just fine. I just closed out my 5th profitable month in a row, still using stochastics, S/R and trend lines on a daily chart (30-day, 6-month, 1-year) to confirm my intraday setups and expected holding period. My intraday setups are still based on stochastics and S/R levels on a 3-min intraday chart that guides my entries. I recently starting watching a SPY 3-min chart to provide additional confirmation, as it's always nice to let the direction of the market provide a boost to the move you're aiming for.
That is actually terrific 5 months profitable in a row, keep it up! I think part of my problem, with all the false signals was using a tick, chart or 1 minute chart, 3 minutes seems to smooth out all the noise. Do you use a double bottom or top with Stochastics, as an entry point? I have also found RSI also seems to help confirm. thx Paul
Paul, thanks for the kind words. When my husband was trading more actively, he used a 1-min chart and ended up leaving a lot of money on the table by exiting at every tiny pivot. He has come to like the 3-min chart much better. And I will add that most of experienced day traders I've spoken with use the 5-min chart. I think double tops and bottoms are great fade signals because they very frequently initiate a strong reversal, and they also provide you with a solid stop area in case the trade moves against you. As for stochastics, I've traded by anticipating a reversal (fast stochastic above the 90 or below the 10 but still on its trajectory), and also by waiting for the stochastic line to pivot from those areas. I can't say that one method is necessarily better than other, as long as you have your stop loss in mind before entering the trade.
nod (Donna) Good stuff except for "D". Volume higher on a rally and lower on declines is ok for position traders in longer time frames with daily charts and stocks. Daytrading, be it stocks and especially futures on a 5 minute chart (use what the majority of the other players use in a game of chance) will not even need to have volume on the chart because that is frivolous information for such a short time frame. Think of the same futures broker getting an order to SELL 500 cars and in the same instant another runner hands him/her another order to BUY 500 cars. He/she is supposed to execute that order bu open outcry (same thing even in electronic). You are going to be a 5%er in this toughest of all games, No 95% loser in you and your husband. BUT, lose the volume as a crutch. Looking at volume in daytrading automatically means you are not anticipating the setup with enough conviction to be in BEFORE the others show up. They show up by being late to the party and are chasing the action created by price moving. Observing price setting up for whatever you are looking for with your home grown plan means you are waiting for price to do something. Right? With that in mind why even consider volume? Volume is useless in anticipating a move and once the movement in price confirms the setup working there also is no need to watch volume because you can tell from your experience what the other players are doing by price action alone. Unchain yourself from frivolous stuff and lighten the load in solving the mkts puzzle. Keep up the good work. Drive by Jack Hersheys girl friends house and yell out to him "Volume sucks"