No that's a zoomed in version of the chart, if you Zoom it out you will see the divergence.
ES Journal | Divergence918
- Thread starter Iwilldoit
- Start date
Before you do that, I suggest that you make certain that you understand "this model."
I am not a "know it all" and I sure hope I'm not coming across as one to you because I see so many of them here ET and I absolutely abhor those highly "vocal" posters who seem to know everything about everything even the things about which they are so obviously clueless. For example, so many are so quick to pronounce that all indicators, not just this or that particular indicator with which they have had experience, but all indicators are incapable of generating an edge.
Now, I don't mind that so many think that, and the more who think it the better for me. But at the same time when I see someone such as yourself giving this technical indicator thing the old college try I feel I might as well be of some assistance in pointing out what I feel are some basic errors. I recognize these errors as errors because I myself made them as well. Most who have tried TA have made them. You are making them right now. If you keep making them, you'll turn out like one of those know it all know-nothings who start "TA is Bullshit" threads instead becoming a BSD like @Handle123.
Look, you have to understand what the indicator is calculating and what that value shows you. A divergence for example, is what you say you are using to signal that a trade opportunity is either present or potentially on its way. So you are looking to enter a long trade, for example, when price makes a lower low, but your stochastic is making a higher low. But why? Do you know why your stochastic will sometimes be at a higher value as price makes a lower low but at other times it will be making new lows along with price? And why is that enough for you to base a trade on?
If you learn this, you will learn a lot about price action that you do not now know. You will also find that you will very quickly be able to recognize situations where price is "diverging" from itself. And once you can recognize that, then other tools, such as the DOM or tick stream can become potent tools for you as well.
But to learn this, you have to look at that formula you posted above and take it a part. What, for example, does the "highest high - lowest low" represent? Also, make sure as you ponder your stochastic, or any indicator for that matter, that you keep the look back period at the forefront of your awareness - this will help you as you attempt to unravel what the indicator is telling your about current price activity (at least it helped me when I was where you are. You need to take that into account when you start to break that formula down. Do you know why it is called %k (percent k and not simply, k)? Do you know why the quotient is multiplied by 100?
I could give you these answers, and no doubt so could @Handle123. But you know who can't? Not one of the close-minded egotistical loudmouths who pronounce TA, PA, or TI or all three to be useless, because each of them has failed at precisely the point at which you are failing: The Beginning. And guess what? I did too. For a long time I was lazy and I thought I was smart. Overbought? Of course! Oversold? Obviously! Divergence? Please... I wrote the book on divergence lol. I was such a cocky dumbass, let me tell you. I would backtest the crap out of something, but it was years before l I finally realized that I didn't even know WTF it was I was backtesting, and because of that I couldn't begin to design a proper system to back test, let alone a proper back test lol.
As I said, I could give these answers to you, but you really should figure it out for yourself. And focus on the %k until you figure out what that is telling you. The %D was just a filter added on and filters tend to be more harm than good in my experience. The only filters I ever found worth a damn was the concept of trend and range. Learn your stochastic, find a way to own the concepts of trend and range, and I think your efforts will be far more fruitful than they have been to this point. And the reason that will be is because you will get yourself focused on price. You might think you already are, but you are not. Please believe me, I know. I was there. You are not anywhere near price itself. And indicators can only be useful tools in your trading tool box if you know how they are derived from price. You see, while most who criticize technical indicators are quick to do so in part because they are "derivative," that is a red herring. It is because these tools are derived from price that they can be, in the right hands, very, very useful.
I never intended to write that much, so I will shut up now. Best to your trading, iwilldoit. I hope you do.
Makes me think, I need to see which kind of stochastics I used to backtest.
Currently, I my platform is using Slow Stochastics (14,3,E) , with an exponential smoothing factor
I need to find the formula for its %K
@zbestoch @Handle123
This is the divergence I am referring to when you zoom out.
Look at the pink ellipses:
- At the 15h30 candle on the 2 Nov, the swing high is noticeably lower, but %K = 96.2
- If you look at the swing high on the second ellipse (14h30 candle), you will see it is noticeably higher with corresponding stochastics high (shown my pink arrow) to have %K= 90.6
- This is classic Bear Divergence.
Keep in mind I am using Slow Stoch (14,3,E) as mentioned in my earlier post.
@Handle123 @zbestoch
For now, answer me this question: What is the general term for the difference between the highest high of the last 14 bars and the lowest low of the last 14 bars? In other words, if you were to strike a horizontal line at the highest high of the last 14 bars and another horizontal line at the lowest low of the last 14 bars, the area on your chart between these two lines would be the ____________ of the last 14 bars.
Fill in the blank, or you are wasting your time.
EDIT: And then take the next step and figure out what the current value of the stochastic is telling you relative tot he answer you came up with in the fill in the blank question above.
No, it is NOT divergence any longer, once stochastics hits 20, everything to left is forgotten. But you will say that is what the books read, books not going to cover your losses.
Playing the should'a could'a would'a you should not even post, only what you sit through as you don't have any clue what you would have done.