I am re-coding Dadof3and3's, beautiful piece of work, D3Spotter to use the indicator's (ind.) data-series as the primary divergence (div.) comparison and price as the secondary div. comparison. First I'm tackling the MACD Histogram, because it's more complex having a zero line crossing to deal with. Then I will work on coding the other ind. that D3spotter has to choose from. My ultimate goal is to have this ind. pass a signal onto a strategy.
What I would like from you guys is to post pictures of your favorite ind. showing a good div. along with a bad div. and explain why on the picture, as I have shown below. From your explanation of bad div. I will code conditional filters to alleviate poor div. patterns
!! Please, I do not want this to be a discussion posting (there are good postings discussing this topic that should be used). Only post Pictures with a brief explanation.
Broker/Data: Mirus Futrues, Zen-Fire, IQFeed, Kinetick
Favorite Futures: 6E, CL, GC
Posts: 132 since Apr 2010
Thanks: 22 given,
Hello Zachary! Good topic and one dear to my heart as I've been studying divergence phenomina for over a decade. I've posted two pics...weak divergence set up on the left and good divergence on the right. Briefly, I use a MACD and Price. Price DT's and DB's can be Close, Exact or Greater by any amount. MACD must make the required corresponding higher low/lower high (for long or short).
For good divergence profit potential, Price must be in good "cycling" volatility and the MACD must retrace at least 50% or more (more is better) of it's established range within signal formation. There's a lot more I've discovered but this is simple and it works fairly well.
I also use a modified stoch to re-confirm the divergence but entry is ONLY taken when the MACD makes it's first turn into the new trend direction on the correct color bar (up for long and down color for short). Glad to elaborate if necessary.
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Zachary, if there is anything I can help you with, just let me know. Since I wrote this indicator, the exposure to the world has been phenomenal, and its interest is growing! I’m not much of an experienced trader but I am a programmer. This indicator has been fun to write and I sure would like to see it continue its evolution. You can reach me @ email@example.com.
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If anyone knows divergence its Roger , he lives and breathes it . I havent been in his room in a long time but Im a student of his . He taught me mucho about form and multiple timeframe confirmation not to mention discipline . Form is critical , think 1. price makes a low 2. eager buyers come in and boost price up 3. theres still some weak sellers to extinguish 4. price comes down to that low again 5. serious buyers get in gear and take over - simple lol . Like to hear more from you Roger and hope all is well with you and your crew out in Texas !
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This is going to seem a little goofy, but there's a method to my madness.
First, the assumptions:
1] You use an indicator to help spot divergence
2] There is a method of distinguishing good divergence from bad
3] Once you isolate good divergence, you need a set of tools to monitor market conditions before entering the trade
The tools would be created by sifting through historical data and identifying which market conditions create the best opportunities. For example, a nice divergence pattern is identified and repeats itself over and over. If traded every time the success rate is 50%. But by filtering those trades to enter only when volume is increasing the rate jumps to 65%.
Then you might add other filters such as volatility, tick rate, etc. to increase the success rate further. In short, these filters would serve as "gauges" to let you know if the porridge is too hot, too cold or just right.
It has always seemed to me that having these "gauges" at our disposal would help keep us out of bad trades by providing visual clues. We all sense market conditions when watching the charts but turning those senses into tangible data would be a big plus, especially when dealing with divergence.
Sure it's pie in the sky, but someday we may have just such tools.
Here is a screenshot of a live trade I took on Friday using NT7 B15. My setup is quite simple. It has a couple of "gauges" as suggested by Hondo - eventhough I hadn't thought of it in that way before. I kind of like it!
Here are the elements - from the bottom up -
1. Colored bar at the bottom - purple look for shorts. Green look for longs. 50 period T3 Average.
2. GOMCDMA - 5 SMA - script changed to non-cumulative per post by Fiki - I can't find the post anymore. I just use this indicator to find divergence.
3. 20 period Bollinger Bands. I have found the higher probability trades come off of a recent touch of the bollinger band.
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