are divergences really worth anything?

[Gordon Gekko]

Quote from Grob109:

I use qcharts.

I asked by PM for the symbol on the stock one I posted elsewhere. Ctrader replied by PM that it was CHRS. It is going to break out next week. I did a chart because he wanted the stops for it.

For ES I use intraday.

You can see Gordon appreciates my response "nope". His comments were kind of brief. So I posted the chart and what I do.
I expected a thanks from him. It looks like he is a flighty person to me at this point. I think that in his psychological thread harry trader pointed out to us that GG is not a concrete type person.

I really do not go for divergence among or between differing things (price and indicators, for example) so I just said "nope". I did not know GG was a flighty person so I responded to his "attitude post". Now, I know he is not too deep an individual and he just starts threads; draws the flies we see here who do not know anything but being trollish; and he moves on.

Some of the comments about using divergence successfully are fine with me. I can see it works for those people. I also see GG could not use it for many reasons harry trader points out. GG is not in a good place for using any TA it looks like.

I am not disappointed in GG. The trolls are trolls. This thread turned out to be a funny one except for the good comments of successful divergence users.

Grob109/jack ,

i appreciate the responses of everyone who replied to this thread, including you. i just realized now that you had posted that chart after reading the above post. sometimes i miss posts.

if you are indeed jack, i do read your posts and i can say i've learned from them. when i started this thread, i wasn't looking to do a complete overhaul of my trading. i was just curious if adding a divergence requirement to an entry really helps any. acrary demonstrated that divergences can work. but as nihabaashi pointed out, if it leads to missing too many trades, it could cause a problem.

as for the comments about who i am and how people perceive me, i'm not going to get into all that. i'm not here to win a personality contest. i've been communicating with people on the internet since before aol for dos and i can say that no one totally knows how anyone really is from the internet alone. similarly, no one but me really knows where i'm at in my trading.

 

[vikana]

I removed a few jack=grob messages.

 

[Walther]

Quote from acrary:

Yeah, there's edges available in divergence trading. Only thing I hate about divergences is you're trading against the outlier trend trades. If you don't have really good defense you can lose your shirt. Upside is also limited.

Here's the results of a simple system using CCI and price divergences with daily data on the SP market since 1990.
Only losing year was last year (the trendiest year for the SP since it began trading). $176,000 of the losses were in 8 trades. Good risk control could boost the results to a PF >2 pretty easily.

Can you give an example of a good defense?
Thanks
Walter

 

[lindq]

Quote from mg_mg:

Divergence is not a magic out of no-where, it is a pattern of price action.

1. When will a divergence occur?

There is a regular divergence for a drift with trend;
There is a reverse divergence for a drift against trend;

and even more:

<b>Any</b> regular divergence must be a drift with trend if a suitable higher time frame is used.

<b>Most</b> reverse divergences are drifts against trend if a suitable higher time frame is used.

2. What is the consequence of divergence?

When a drift is with the trend, the trend will likely reverse;
When a drift is against the trend, the trend will likely resume;

so

A regular divergence means the trend likely to reverse (<b>but be aware of the degree</b>);
A reverse divergence means the trend likely to resume;

3. What is drift?

Drift is a pattern for which price is restricted in a slightly-slanted channel with non-increasing pivot distances. Drift can a flag, pennant, wedge and triangle.

4. Why so much divergence?

For 30% time, market is in trend mode;
For 70% time, market is in trading mode;

So

For 30% time, market is in impulse move;
For 70% time, market is in drift move;

So

For 30% time, market is likely to haveno divergence;
For 70% time, market is likely to have divergence (either regular or reverse divergence).

5. Any role of indicator here?

It would be better if one can identify divergence just from naked price chart. In fact, it is very easy.

Nearly all oscillating-type indicators are either the differences or normalized differences, thus very sensitive to the price change, and are good for spotting divergence.

Following this line, one can construct infinite indicators that are much sensitive to divegence by just taking higher order difference.

6. Why one indicator shows divergence but others not?
As just said in 5, nearly all indicators are detrended prices, but meanwhile they are filtered de-trended prices. Due to the filtering property, each indicator has a cut-off frequence range. Thus, different indicators have different sentivity to the price change.

For example, CCI is non-smoothed de-trended price, the high-frequent components of prices are kept, so it is very sensitive to the price change, while MACD(12, 26, 9) is a smoothed de-trended prices, so it is not sensitive to the change in high-frequent components. So it maybe the case that there is a divergence in CCI, but not in MACD.

7. Why divergence appear on so many time frame/for so many indicators/with so many different setting?

Market is a self-similar fractal: a feature exists in all scales.

8. How to use divergence in trading?
Use it as a warning sigh;
Use it with the trend.

Okay, after all that verbiage....I challenge you or anyone on this site to post, IN REAL TIME, a divergence that leads to a reasonable profit on a trade. Any timeframe, any market, any instrument.

The post must be timestamped as the trade is entered, along with the specifics of the divergence.

I hope to be proven wrong, but I seriously doubt it. In my experience divergences, like many chart patterns and published trading "secrets" are worthless when you are trading the hard right edge in real time.

 

[Walther]

Divergences alone are not enough for trading, however if combined with power point or intraday cycle analysis , divergences are very powerful tool. As an example look at 5 min S&P 500 chart around 14:20 est which happened to be one of the power points. If you have CCI 13 divergence at or greater then + - 80 around that time go with the direction of a divergence .
Walter

 

[tradersaavy]

lindq,

Are you serious ?

Do you actually trade with real money ?

How can you say that a reverse head and shoulders is marketing material ? (you posted this earlier in this thread)

Trends exist. Trends stop and reverse.

All reversals are some type of double bottom/top, head and shoulder, rounding, whatever you want to call it but they all have one thing in common:

There's a trend that is broken and the product takes a little time to change direction and the trends start in the new direction.

This "time to change direction" forms different yet similair shapes. They happen to look like heads and shoulders sometimes and hence the name. This is marketing ?

I do not want to sound like I am attacking you but where are you coming from with comments like this ?

 

[NihabaAshi]

Quote from lindq:



Okay, after all that verbiage....I challenge you or anyone on this site to post, IN REAL TIME, a divergence that leads to a reasonable profit on a trade. Any timeframe, any market, any instrument.

The post must be timestamped as the trade is entered, along with the specifics of the divergence.

I hope to be proven wrong, but I seriously doubt it. In my experience divergences, like many chart patterns and published trading "secrets" are worthless when you are trading the hard right edge in real time.

Hi lindq,

Please read the two private messages I've sent you this morning.

See you on Monday and I'll let the traders of the #FuturesTrades realtime trade posting room know that you'll be a special guest...

you'll be allowed to observe, lurk and not required to post your own realtime trades.

NihabaAshi

 

[lindq]

Quote from tradersaavy:

lindq,

Are you serious ?

Do you actually trade with real money ?

How can you say that a reverse head and shoulders is marketing material ? (you posted this earlier in this thread)

Trends exist. Trends stop and reverse.

All reversals are some type of double bottom/top, head and shoulder, rounding, whatever you want to call it but they all have one thing in common:

There's a trend that is broken and the product takes a little time to change direction and the trends start in the new direction.

This "time to change direction" forms different yet similair shapes. They happen to look like heads and shoulders sometimes and hence the name. This is marketing ?

I do not want to sound like I am attacking you but where are you coming from with comments like this ?

As I make my living trading reversals - and a good living it is - I don't really need a lecture on the fact that prices fall and prices rise.

My point is that many patterns make for great publishing in HINDSIGHT, but are very difficult to discern and trade in real time on the hard right edge. They typically fail as often as they payoff, and are not usually worth the risk of capital as indicators themselves.

But please prove me wrong.

You are invited to post some trades that are entered - in real time - based on a reverse head and shoulders pattern.

 

[illiquid]

I trade intraday almost exclusively on divergences, although I'd never use a divergence between a price and its own derivative (stoch, MA's, macd etc).

 

[Covertibility]

Quote from lindq:




As I make my living trading reversals - and a good living it is - I don't really need a lecture on the fact that prices fall and prices rise.

My point is that many patterns make for great publishing in HINDSIGHT, but are very difficult to discern and trade in real time on the hard right edge. They typically fail as often as they payoff, and are not usually worth the risk of capital as indicators themselves.

But please prove me wrong.

You are invited to post some trades that are entered - in real time - based on a reverse head and shoulders pattern.

Even if trades are posted real time doesn't mean the poster is actually involved in the trade. If everyone sees a flag breaking to the downside, everyone will try to short it and as a result no one will get a fill, why? First ya can't short w/o an uptick and if a majority are stacking up their orders (shorts) against a price, there may not be enough buy orders to fill those shorts. As you've truthfully state " many patterns make for great publishing in HINDSIGHT, but are very difficult to discern and trade in real time on the hard right edge. They typically fail as often as they payoff, and are not usually worth the risk of capital as indicators themselves."

Few goldrush miners made money but the sellers of the picks and shovels made a fortune as well as the publishers of the propaganda who claim "piking for gold" is a sure way to financial freedom.