Which Indicator is the Worst for Trading Divergences?

Discussion in 'Technical Analysis' started by GiantDog, Aug 2, 2013.

  1. GiantDog


    I know it more than likely has to do with the settings of the indicator but I was wondering if any of the indicators that some traders (if any) who use them for divergence trading know which ones would be the worst to use. Just wondering.
  2. Any indicator can be the worst for divergences if not used correctly( during periods of very low volume, during news events, wrong indicator settings in relation to tick/time frame...etc).

    One of the best ways to use an indicator(lets say for example MACD) for divergences is to use it with candlestick reading..engulfing candles, shooting stars, hammers,etc,.. near s/r levels intraday or daily.

    remember..the smaller the time frame ..under 15 min, or the smaller the tick size, the more data noise you have to fight thru to see what the market's true intentions are.

    For me as a professional trader, trendlines, sup/res and candlestick reading does a much better job of signaling changes in direction than any indicator.
  3. The worst one is the one that hasn't been thoroughly observed in all of the different states of a specific stock, commodity, etc... uptrend, downtrend, range bound with chop, without and all of the other permutations.

    There are times when an indicator "seems to be ahead" of price. It's a traders' job to have observed said indicator thru enough cycles to start to see the patterns.

    The context of the market is more critical than what the indicator is possibly revealing.

    It will takes months and months of time.
  4. Most divergences have ended up losing money this year.
  5. GiantDog


    Okay, interesting replies so far. But the reason I am asking is which indicator would be the worst to use is so the results can be faded.

    One example would be when a slow developing trend is in it's early stages of development but it is not obvious yet.

    Another would be in a low volatility price action or in a choppy price action so as to identify weak divergence signals that are more likely to fail.

    Also, higher risk types of divergence signals that are fighting against an obvious trend.
  6. Redneck


    Allow me to pose this…. (a simplified version of TD’s post - even though TD's post is straightforward)

    Indicators are neither good or bad – each one reflects what it reflects (no matter the setting(s)... or any other whatever)

    It’s how a trader interprets and reacts

    Which is true with all things trading

  7. Not divergences backed by the trend.
  8. I was going to keep this in my prior post but removed it:

    If the market in an uptrend, don't take any short signals, take only pullback longs, how will you know if the trade will workout, you won't, but there is a higher percentage that it will go higher before going lower.
  9. IMO a better way is ........

    What is the market doing now? If it is range bound chop, then MACD sure, but if it continues to go up a momo indie is better.

    Gauge what the market is doing and then find the best indie for those conditions.
  10. Absolutely and its great to read it from time to time in public boards, but somehow this is almost impossible to ingrain to many, newcomers and experienced traders alike.
    #10     Aug 3, 2013