Which indicator works best for divergence?
RSI? Stoch? MACD?
What tips do the experts have!
The problem is. Divergence is allways easy to spot looking back.
But when to you know that divergence is complete?
Because I am a genius.
Niandra, all indicators are derived from price. Oscillators measure rate of change of price, and decelerations in price show up as oscillator divergences, simply because of the way the oscillators are calculated.
In the attached chart, both MACD(12,16,9) histogram and RSI(14) show divergence. Why? Price is decelerating (the slope of the yellow lines is getting less steep). Or, in other words, the distance between successive lows is decreasing.
The problem with indicators: it's not only about which indicator to use, but how to calibrate them. Different parameter settings will give completely different results - how can we know in advance which settings will give the most profitable divergence signals?
Answer: we don't. And a deceleration doesn't necessarily lead to a decent reversal. It might just represent a brief correction (some profit-taking, perhaps) during a move.
Sentiment drives price, and then price drives indicators. Hence indicators are a symptom, not a cause.
Price doesn't need calibration, and it is also timeframe independent. The longer I continue to study charts, the more I realize that almost everything worthwhile can be learned by looking at price alone.
how to spot diveregnce without indicator
I wrote once algos for regular divergence entries based on TRIX and BR Squeeze (based on bollinger bands) in easylanguage. The reason for two indicators was that one was needed to measure a 'close' neighbouring divergence to the closest low / high and the purpose of the second indicator was to look for a divergence to a more distant low / high. If both conditions were met than the strat triggered the entry.
It worked better than just one Stoch. But it turned out that this entry technique worked better as exit technique after all.
stoch 14,3,3 but still there's a lot fake.... the ratio win:loose = 50:50
CCI is also quite useful
Divergence can be useful as part of a confluence of tech reasons to go against the immediate prevailing price action...in the case of regular dibergence both bullish and bearish the best advice is to spot what the repeating patterns of divergence are on the instruments and t/f's of choice. Ie In the case of regular divergence, there are immediate patterns, sequential patterns and within same peak/valley patterns. Using long settings on your chosen oscillators you are more likely to see same peak/valley divergence whereas using shorter settings are more likely to see seperate peak/valley divergence develop, (ie when the oscillator has passed down or up through it's horizontal zero axis before coming back up/down to form a seperate peak/valley.) Perhaps have a longer setting and a shorter setting oscillator and seek the confluennce of them both showing divergence from price.
Make sure you understand what such divergence from price is telling you about price, as alluded to in the posts above, and seek price action confirmation and other technical confluence. Remember too that price (probably !) doesn't move in the opposite direction from the immediate previling price action just beacuse we may have a pretty divergence pattern, but becasue of an imbalance of supply/demand or demand/supply ( I see probably beacuse there is an argument that TA is self fulfilling-there may be some truth in this to whatever extent.)
Seek the confluence of more than 1 t/f, Eg very often in a trend after a pullback you may notice that a shorter t/f will be showing regular divergence whilst the t/f above it is showiing hidden divergence.
RSI. You can push up your hit rate by optimising the gap between divergence points. My EA hits 85% depending on the underlying instrument and the settings. Set your divergence rate at say 25 bars between peaks (or troughs) and you minimise the market noise. Set your stops using ATR factors and you minimise your exposure if the market continues its run against you. If the bars count is low, say 1-5 between peaks, the hit rate drops significantly. Set wider, you're increasing your probability that the market is overbought so it works better for you. But, set it too wide and the data are no longer related. Tricky, but do-able.
Divergence trading is trading by comparing the movement of Price Action and indicators. Trading divergence can become a Leading Indicator.
1. Wait Price (Chart) for the following pattern: Higher High, Lower Low.
2. See the indicator. When it showed the opposite direction of the following chart pattern then it is divergence.
And we should use the MACD histogram, because histogram is easy to read.
a to z indicators
Thank you very much for your answer.
Trix MQ4 code that you have a link from. But this is not a complete indicator of trix. I found it in the internet trix add MQ4 code.
But I do not have different colors when I train up and down the train.
Trix green line in this code up on the train. trix can add a line of code would be very happy down the red Tran.
Signal line upward trend in the green. The signal can be added to the red trend line down.
trix indicator changes made in. But it gives some errors. Not continuous lines. Space between them is happening. Especially in return. When you first open platform draws lines so wrong. How can I solve all these problems. I would be glad if you help someone who knows how to write code.
The deepest regards.
CCI has extreme diverenge due to its math
can i have a copy of this? if you dont mind of course.
for regular and hidden divergence i prefer the macd but the rsi shows it first
its not the holly grail but regular divergence is what you wanna see on yah swings if you spot hiidden divergence be prepared for sidways a pullback or reversol
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