Divergence--untamed beast or man's best friend?

Greetings thru:

MFI + MOM.

Sorry for my delays in posting the charts I promised and getting back to you, have been too busy.

Anyways I am ready if you have time.
So we can have a better discussion, could you tell me how long you have been trading divergences and have you been consistently successful at it ?


Quote from thruline:

Hey, OptionPro:

What have you got overlayed on that chart?

I've been looking at 1-4 hr forex charts, using S&R with divergence. Check out this MACO indicator and how well it gauges strength and coming turns in market.

The bars are colored to match MACD bias.

Thru
More...
 
Option:

I look at divergence as a desired condition for taking a trade that conforms to other at least equally important conditions. I'm successful as long as I don't over leverage. As soon as I do that, the emotions charge in and destroy all my beautiful work.. ;-)

It's all about comfort zone for me. I bet too much, bad things happen. In addition, I read a post by someone--can't remember who it was right now--talking about waiting for the really quality setups according to your method. I'm trying to do that.

Here's a chart. Trades 1 and 2 show nice div at BB band touch or near touch with MACO line cross as confirmation. I consider these really good setups.

Trade 3 isn't quite as good; at least put on smaller position or step aside. Trade 4 has both reg and rev divergence going for it; worth a try.

The up move between trade 3 and 4 was not off a clear divergence (at least the way I'm measuring it). Why mess with it if it doesn't meet my entry requirements? Yes, I will miss nice moves sometimes as a result, just as any filter will.

Thru
 
Thanks thru:

From what I can gather, you are entering your trades once you have determined a divergence exists and only after a trendline is broken ?

Unfortunately for purposes of our discussion I specialize in position trading using EOD and intraday for entry only so I don't have to be so exact as to my entry price.

The reason I ask you about your entry point has to do with where you place your stops and what your R/R ratio per trade is.
 
Hi Thru,

Thanks for the charts. They are very informative. I have a question though. How did you know not to short the divergence marked in orange (attached)?

I was originally thinking that you might have waited for the MACD to cross the 0 line for confirmation, but I think that would have occurred for this trade also. The top bollinger band was also touched, further confirming the trade. Do you wait for the price to cross the moving average in green before you place the trade?
 
ghetto:

I do get suckered in at times; this wasn't one of them. I was long and managing that position. I took 2/3 position off prior to that point and did wait that pull back out (but still got out 'too early' after).

Also, on a sell, I'm looking for the MACO to cross red line for confirmation. It didn't in this case.

Option:

I put a stop on other side of BB. Depending on where I get in, I use midline or touch of other side as initial profit target.

The attached chart--I didn't take these trades--shows what I'm looking for. I really want price to move to the bands. Sometimes I'm already in, so I'm managing a position. As you know, on bigger moves, price will stick to bands with divergence. You have to have other reasons to jump in. Sometimes, I'm in early.

Thru
 

Attachments

The other filter I use is time frame. The attached chart shows:

1) Higher TF still long, no divergence yet

2) Higher TF still short, no divergence yet

3) Div on both TFs, after touch of BBs, buy on blue.

Thru
 

Attachments

Quote from thruline:

The other filter I use is time frame. The attached chart shows:

1) Higher TF still long, no divergence yet

2) Higher TF still short, no divergence yet

3) Div on both TFs, after touch of BBs, buy on blue.

Thru
More...

One thing that will help you read those Divergences clearer is a smoother indicator. That one you are using has more noise in it that a head banger ball.
 
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