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I see some talk on futures.io (formerly BMT) about divergences both positive and negative . Does anyone here use a divergence strategy ? Is it a profitable method and is it well constructed ? Carefully and patiently tested without changing any variables ? Can it be applied to trending markets ?
I have taken a course with a well known ( known , not liked ) educator that pitches a divergence methodology . I took their course and went away frustrated , this was 3 years ago . Since then I've gotten a lot of screen time and have considered that maybe when I took the course I wasnt ready to trade , especially with divergence . I'd rather not name which educator because the goal here is to see what input you have about divergence signals and how you apply them . If theres any interest I would be glad to share what I do with divergence and how I've adapted the knowledge I have on the subject .
Can you help answer these questions from other members on NexusFi?
One of the indicators I rely on is a Bollinger Band indicator that paints price in relationship with the Bollinger Bands. In addition, I added a Divergence highlighter that paints notices when a HMA is moving in the opposite direction of the BB's.
I find it quite useful. I can't share it because the main indicator is from BWT and is commercial, sorry. But there are others or others can be created.
I have found that many times it will signal divergence and then a nice move will occur. I have rationalized this as traders getting caught on the wrong side of the market and covering their position.
I've also created divergence indicators on CCI and some other stuff, and find it useful for the same reasons.
I'd like to know how you decide when NOT to use divergence in your trading. I remember when I first learned about divergence and tried to apply it on a trend day
Hey Jeff , the best divergence signal when price is trending is hidden divergence . I am using two indicators to confirm one another , a lot like the divergence classrooms are selling people .
The problem is you will get hidden divergence signals like with a stochastic stretched above the overbought level ( in a potential sell situation ) and I've found thats a sign of bullish strength . I use a maximum of 2 cycles back for the indicator to surpass to qualify a continuation or hidden divergence otherwise I'm looking for the trend to change .
But price action is critical . For example if I'm looking to join an uptrend and price makes a lower low but the indicators are divergent I'll sit that signal out . Thats probably what makes divergence or any other method difficult , you have to really say to yourself " does an entry here make sense ?"
Heres a screenshot of what I am using for hidden divergence . This is a signal from this morning and this is by no means a perfect trading environment.
This is what I would want to see to join the uptrend ....
1. Price closing higher at the highs and price closing higher at the lows . At the very least price hasnt closed lower at the last low .
2. Stochastic didnt surpass the stoch level of the last two cycles .
3. Macd is below zero and has been and at the very least was able to cross zero on the last price high .
4. The fill price has to be less than 50 % retraced from the last price high - price has to offer some profit potential .
This is just an example of using divergence to join a trend , Im sure there are many other divergences that I dont know about but this is something I've been looking at that offers a good win ratio and reltively tight stops .
I feel that combining price action and this kind of signal could be a viable edge .
Eric j - the idea of looking for divergence off fibs 1.13 and fib 1.27 from previous highs and lows comes from the outfit MT-Predictor and they call it DP (decision point) - i believe Advanced Get also uses that same logic but they call it MOB (make or break)
if you use those fibs you're basically creating an isosceles triangle which is something i believe gann would use in his trading - not confirmed on the gann thingy tho
Thanks Gio , please share some more detailed examples if you could . Maybe something on a long timeframe I suppose , this sounds like something that could be applied for swing trading .
I find divergences on a timeframe like 28657 tick on the ES is much stronger than a small timeframe like 233 tick .
eric j - im not an educator but i'l try my best to give you some examples
this is a 15min, day only, chart of the es - this is a good example of where price could make that isosceles triangle that gann would look for
if you take the significant high at 1027.75 and the significant low of 991.50 you could expect resistant at 1037.75 as depicted in gray shaded area
on a much smaller swing , if you take the high at 1025.75 and the low of 1019.75 you could expect resistant at 1027.75 as depicted in light green
im sure you get the idea of where to anchor your fib of 1.27 to get the isosceles triangle
the box that is created by fib 1.13 and fib 1.27 is a likely place divergence could occur - the divergence im referring too is using a stochastic with settings of 933 ( or whatever settings you prefer)
you could try to zoom in on a 3min chart of the es to get a better feel of an isosceles (squaring price)
