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Forex Spot with Divergence
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Forex Spot with Divergence

  #1 (permalink)
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Forex Spot with Divergence

I've been trading PT for about 3 yrs off and on, doing a lot of lurking but mostly spending time sorting the wheat from the chaff. This is by far the best trading resource on the net, and thanks for that Mike.
The puzzle for me has been how to figure out what is going to happen based on what has happened. I have lost a ton of money (at least to me) trying to figure this out. I would enter too early, get stopped out and then think I was too late to get in when it went in my direction and scared to re-enter. Often placed my stops too tight probably because I was sure they would be hit and didn't want to lose too much. How stupid is that??
I think I have tried almost every indicator known to man and combinations I'm sure have yet to be discovered. My discipline has sucked.

Now, to the present.

Thinking logically, indicators derived from price are not much help in forecasting. There is no REAL volume to determine buyers and sellers (remember, this is spot forex).

Again, trying to think logically, price usually moves a bit like a huge snowball being pushed uphill by 3 little boys...sometimes in a hurry, sometimes not. As long as 2 of them are pushing, the snowball (price) continues to move. When 2 of the boys take a rest and there is only one pushing, something has to happen. The one still pushing is not strong enough by himself to continue for long, so the effort is lagging even though the snowball is still moving. This is the behavior I'm looking for in an indicator and the only way I can see to have reasonable assurance of what is going to happen in the near future. At this stage, there are only 3 options. The 2 resting boys come back to spell off their buddy and the snowball (price) continues up the hill, 1 of the boys comes to help and they are able to hold it steady (consolidation) or, and this is what I'm looking for, the snowball (price) is too heavy for one young fella by himself and starts rolling back downhill.

There are a couple of indicators that help to forecast this reversal behavior. My favorite is the RSI overlay, possibly because it sits right over the price. When the indi is showing divergence and the price is showing structure (S&R, patterns etc) I'm looking for an entry. I have learned not to be too early or you WILL get burned. Take the meat out of the trade, dont worry about the fat on both ends.....it's not good for you.

Use a slightly longer TF, 10 or 15 minutes or range bars, and enter on a stop, using the momentum of the price action to get you into a safe entry with a tighter stop, scale out partially when you have your SL covered and sit back and enjoy the ride.

A couple of nice examples on the chart below. Hope it comes through ok.

Merry Christmas to all.
Spanky

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Forex Spot with Divergence-div-ej-12232409.png  
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  #2 (permalink)
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Hey Spanky,

I have and still use divergence in my trading. If used correctly, it can help boost your trading. I don't use it on its own but more of confirmation to what I am seeing on the chart. Thanks for the charts.

Merry Christmas to you as well and everyone else here at Big Mike Trading.

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  #3 (permalink)
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Hi Spanky,
looks great!! But how do you
overlay the RSI to the chart? Regards Wolfsch

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  #4 (permalink)
Market Wizard
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wolfsch View Post
Hi Spanky,
looks great!! But how do you
overlay the RSI to the chart? Regards Wolfsch

There is an indicator that does RSI Overlay on Price on NT forum:

Links and Downloads Manager - NinjaTrader Support Forum


That could be the way he is doing it.

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  #5 (permalink)
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Hi Wolfsch
Sorry, I've been doing the family thing for a couple of days. DavidHP has got the answer tho......I use a setting of 5/3 but only show the avg. I like the 80 or 50 range bars and try not to confuse the issue with other time frames.

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  #6 (permalink)
Big game hunter
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Quote from Spanky - Thinking logically, indicators derived from price are not much help in forecasting. There is no REAL volume to determine buyers and sellers (remember, this is spot forex).

I think tick volume could help . I use eSignal and have looked at forex with tick volume and it can be used as a proxy for volume . At the very least you can detect Institutional activity . See tradeguider on youtube , theres a few vids by them showing forex with volume . Dont give them your money but check out how they use volume in this fashion . I repeat , dont give them any money .

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  #7 (permalink)
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DavidHP thanks for your answer to my question. I got the indicator now.
Another question: how can I post a thumpnail to a reply?

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  #8 (permalink)
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Hi Eric j,

I've looked at tick voume and Tradeguider. Ticks can help but they don't tell you the size or strength behind a transaction, just that one was made. Could have been 1 lot or 10. I only mentioned volume because it can be used to help confirm divergence as well.
Thanks for your comments. Anything that will improve ourreturns is worth checking out.
Happy New Year to all.

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