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Divergence Trading

I use the MACD divergence with settings 12,26,9. For me its a very powerful tool in i totally believe in it and know that it works. But in isolation its useless. You have to have criteria where price is likely to react to its divergence.

What kind of confirmation do you use? Are here people around that would call themselves as divergence traders?

Many greetings


A very nice example for continuation in a downmove with hidden divergence
Nice divergence on UCad long today.

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Cheers
CanuckCT
Stcoh divergence
MACD divergence (not diff)
breakout down-trendline

pic's wrong: left-side sell, so SL = entry level while >30 pips profits
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I trade divergences like this: When the higher timeframe is OB/OS, I wait for divergence to occur on the lower timeframe as the entry point, with the TP being the opposite stochastic extreme.

If a high timeframe such as the daily was showing divergence, I would look to see if the weekly was at an OB/OS level. If so, I would look to enter the trade with the TP being the opposite extreme of the stochastic of the weekly, essentially trading the weekly from seeing the divergence in the daily.
I met another trader in a different thread here in FF, and like to show
him daily divergence charts combined with bollinger bands. It doesnīt fit at the daily candlestick thread, but I hope it is appropiate to post it here.

Examples for ifebaba94:
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potential setup for gbp/usd and gbp/cad under development.

Not the time to jump in early, but worth to watch closely, if divergence
develops more or price reverses.

gbp/cad maybe next week, g/u maybe tomorrow. shooting star prefered.
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Quoting peaches
potential setup for gbp/usd and gbp/cad under development.

Not the time to jump in early, but worth to watch closely, if divergence
develops more or price reverses.

gbp/cad maybe next week, g/u maybe tomorrow. shooting star prefered.

Hi Peaches,
How are you doing?Can you please tell me the setting for your BB and where i can get your divergence indicator from.I want to add this method to my trading tool.Pls,i pm you.

Sincerely,

ADESHINA.
Hi,

bollinger band setting is standard setting 20,2.

Attached is the macd indicator and another supply/demand indicator. I experiment with this indicator for a few days, it gives areas of supply and demand. So we have a bearish divergence on GU and price reaching this special area, so it has to react here. Question is, if it goes further down, or
if it resumes uptrend on tuesday to break through this resistance area. Daily gbp/lfx chart gives confidence for short.

I also have an eye on eur/nzd and nzd/usd building up a potential divergence but its far to early if there will be a divergence.

greetings Peter
Attached Images (click to enlarge)
Click to Enlarge Name: gbpusd.gif Size: 24 KB Click to Enlarge Name: eurnzd.gif Size: 21 KB
Attached Files
File Type: ex4 FX5_Divergence_V2.1.ex4   11 KB | 150 downloads
File Type: mq4 FX5_Divergence_V2.1.mq4   11 KB | 186 downloads
File Type: ex4 II_SupDem.ex4   36 KB | 123 downloads
File Type: mq4 II_SupDem.mq4   29 KB | 155 downloads
Quoting peaches
Hi,

bollinger band setting is standard setting 20,2.

Attached is the macd indicator and another supply/demand indicator. I experiment with this indicator for a few days, it gives areas of supply and demand. So we have a bearish divergence on GU and price reaching this special area, so it has to react here. Question is, if it goes further down, or
if it resumes uptrend on tuesday to break through this resistance area. Daily gbp/lfx chart gives confidence for short.

I also have an eye on eur/nzd and nzd/usd building up a potential divergence...
Hi,
Thank you for every thing.I guess you are in bear camp for nzd/usd but cannt say any thing about eur/nzd.

Sincerely,
ADESHINA.
Quoting Ifebaba94
Hi,
Thank you for every thing.I guess you are in bear camp for nzd/usd but cannt say any thing about eur/nzd.

Sincerely,
ADESHINA.
Hi ifebaba,

yes I`am at bear camp for nzd/usd, not in a trade yet. But for how long bearish?

Notice on chart the first big mountain "1" at macd. Iīam looking for the second mountain at macd "2", maybe it is far smaler then the first mountain. But Price ? Price expecting to drop furher, 0.78-0,79 area would be fine to build a bullish divergence. Look out for a bullish candle pattern there.

I hope it happen next week, because after that I`am on holiday.
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ifebaba, I thought about money management, which might be most importend for trading divergences.

Lets flip a coin and say 50 % of divergences are losers, and 50 % are winners.

So you win over all, if you cut your losers (lets say price goes against you for more then one or two days, you have to close trades with loss), and let your winners run (for more then 1 or 2 days).

If traders donīt cut their loses, this method might lead to bad results.

Just my thoughts about money management and divergence trading.

Attached a weekly bullish divergence, which is building up and has not lead to a bullish explosion yet.

Have a nice trading week.
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by going through the charts, I missed this one.

It is a divergence, but I donīt like this interventions talk about it. Should be normal market behaviour moving the markets.

I put it on the watchlist.
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Quoting peaches
by going through the charts, I missed this one.

It is a divergence, but I donīt like this interventions talk about it. Should be normal market behaviour moving the markets.

I put it on the watchlist.
Hi Peaches,
I shall watch too.Keep in touch.
an exotic, but a setup:
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I'm a big fan of divergence, but trading the regular divergences is fraught with danger in my experience. I can honestly say I have never seen a regular divergence not play out, but predicting when they will play out can be very costly.
For instance, there was a bearish regular divergence in play on the Weekly Gold chart since $1189 and it's still visible on the Monthly. The play out area for this is approx $1008. We now sit at $1900 give or take. I would be laughed out of town if I told everyone here that Gold will retrace to $1000 wouldn't I?

Also, i'd like an opinion on what makes a divergence no longer a divergence; ie played out. Some of the charts posted here do not have a current divergence in play for my eyes. I'll try to find a good example and post.....

Found one:
Current 4hr Gold chart.
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Note how bearish regular divergence was formed, signalled by the white lines.
There was a dip from the highs to the area highlighted by the blue box. This area sits at or below the level where the original divergence was measured from. Therefore, imo it has played out.
Additional bearish divergences may then form, but these would have to be measured from scratch.
The problem then occurs when additional divergences are formed on top of older ones, (I think BBMAC referred to it as 'sequential divergence), you have to switch to a higher TF chart in order to see the definitive play out area.

Not sure if that makes sense to anyone tbh.
Hi ukdaytrader,

you have an interisting question here, when has an divergence played out, and in which case it is just adding up.

My first impression is, a divergence has played out, if an oposite MACD cycle has finished. In your example, if you got an negative MACD.

I was thinking about targets with divergence trading and I think my target in a bearish divergence would be a negative MACD sloping upward.

I have no true answer for this, and have to think about it and read somewhere.



Quoting ukdaytrader
I'm a big fan of divergence, but trading the regular divergences is fraught with danger in my experience. I can honestly say I have never seen a regular divergence not play out, but predicting when they will play out can be very costly.
For instance, there was a bearish regular divergence in play on the Weekly Gold chart since $1189 and it's still visible on the Monthly. The play out area for this is approx $1008. We now sit at $1900 give or take. I would be laughed out of town if I told everyone here that Gold will retrace to $1000 wouldn't I?...
Quoting peaches
Hi ukdaytrader,

you have an interisting question here, when has an divergence played out, and in which case it is just adding up.

My first impression is, a divergence has played out, if an oposite MACD cycle has finished. In your example, if you got an negative MACD.

I was thinking about targets with divergence trading and I think my target in a bearish divergence would be a negative MACD sloping upward.

I have no true answer for this, and have to think about it and read somewhere.
Thanks for your response.
It's a difficult one to work out, because if we waited until the MACD cycle had reversed, price could have moved a very long way. If we are to scale in to a divergence position, we must be willing to handle considerable drawdown.
I have often spoken to other traders about divergence after divergence occuring and tbh most of them have not fully understood what I mean. BBMAC though describes it very well by saying it's sequential; ie over a larger number of peaks/troughs than 1. The idea being that if you are seeing divergence across a large MACD scale on say the 1hr chart, you are then likely to see it more clearly on the 4hr chart.

I have always taken a fairly safe approach to this in that I consider a RD played out once price has reached a level where divergence would no longer be considered if working from scratch. (if that makes sense).

Also worth remembering, it is a bit dangerous measuring the cycle by either a +ve MACD or a -ve one. The zero line is just a visual frame of mind and we have to sometimes see a trough on the +ve side as our point of reference for our dip, and vice versa.
Quoting peaches
potential setup for gbp/usd and gbp/cad under development.

Not the time to jump in early, but worth to watch closely, if divergence
develops more or price reverses.

gbp/cad maybe next week, g/u maybe tomorrow. shooting star prefered.
I have already take profit first part out of 3 positions. Tomorrow might be a good idea to take second part at lower bollinger band. Third position is a free ride until reversal candle appears.
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Quoting peaches
by going through the charts, I missed this one.

It is a divergence, but I donīt like this interventions talk about it. Should be normal market behaviour moving the markets.

I put it on the watchlist.
Entry usd/jpy long at the middle of the london session today.
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