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Multiple Divergencences in a row

  • #21
  • May 7, 2018 12:42am May 7, 2018 12:42am
Quoting saoshyant
{quote} That my friend is something I have seen so many times in different pairs and time frames. I usually try to put my SL further away in order to nullify these. Also there is another pattern called 113% Extension, in which trend breaks the previous support or resistant line, going further only to touch 113% extension and then make a reversal move. Some other times it may even go further to touch 127% extension but not more than that. That is where I put my SLs; behind 127% .
As for illustrations, you may check these:
Attached Image(s) (click to enlarge)
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  • #22
  • May 7, 2018 1:15am May 7, 2018 1:15am
Quoting saoshyant
{quote} I may disagree with you on the "works like a charm" part. Although multiple divergences can be both an important and powerful reversal movement, knowing when it will, if it does at all, is of much higher importance. You can back-test this in volatile currency pairs such as GBPJPY and as you said, you will see it works like a charm. The problem is, in real time trading, when you see a double divergence in a row, will you jump in or wait for a 3rd or even 4th divergence to form and then enter a trade. From my logical point of view now, relying...
I understand what you are saying but these are the type of setups that work for me: agressive move to hit the stops, nice inverted hammer at london open on the second leg of the M while its shows Divergence on the RSI. These are nice 50-100 pip moves which you can catch almost every day, this is my way how i use divergence but im a dayrader so this may not apply to you. Also i understand that patience and emotion are a big key, but if you have blown numerous accounts over the last 11 years you should probably learned some patience by now haha.
Was slipping off the edge but i held up.
  • #23
  • May 7, 2018 1:55am May 7, 2018 1:55am
Quoting JustPipping
{quote} I understand what you are saying but these are the type of setups that work for me: agressive move to hit the stops, nice inverted hammer at london open on the second leg of the M while its shows Divergence on the RSI. These are nice 50-100 pip moves which you can catch almost every day, this is my way how i use divergence but im a dayrader so this may not apply to you. Also i understand that patience and emotion are a big key, but if you have blown numerous accounts over the last 11 years you should probably learned some patience by now...
I was a teenage back then and I see that I have made big improvements on this by the passing of time.
May I ask which pairs would you trade at London open time?
I usually start checking the market from H1 to M1 but I think I should shift that to Weekly=>H1. I understand that some breaking news, along side with other noises on lower time frames might hit SL which is unfortunate. However, on bigger time frames, technical analysis is working much better and these noises are nullified. Plus if I tend to trade on higher time frames, I might find the opportunity to get out of my chair for a bit. Sometimes I am sitting behind my chair for over 8 hours which is unhealthy I guess.
  • #24
  • May 7, 2018 2:29am May 7, 2018 2:29am
Quoting saoshyant
{quote} I was a teenage back then and I see that I have made big improvements on this by the passing of time. May I ask which pairs would you trade at London open time? I usually start checking the market from H1 to M1 but I think I should shift that to Weekly=>H1. I understand that some breaking news, along side with other noises on lower time frames might hit SL which is unfortunate. However, on bigger time frames, technical analysis is working much better and these noises are nullified. Plus if I tend to trade on higher time frames, I might find...
Mostly EUR and GBP based pairs, and i only trade 1H and 15M charts.
I have the same problem sitting in front of my desk 10 to 12 hours a day but last weeks im becoming more profitable and only trade on days i clearly see the patterns.
This has given me more freedom and less losers. I wait for the dealers to hit the stops at the london open and will react upon that. If they agressively hit the stops above or below the asia session and form an M or W and met all my confluences i will take the trade without hesitation. Just like the one on your GBPJPY, easy 50 pip trade. Thats how i learned to use divergence. On the patterns not on the whole trend. I traded higher timeframes before with dozen support and resistance lines, fib retracements and trendline breaks and bounces while never going below the 4H chart. I still swing just shorter periods like 2 to 3 days but i love my daytrading
Was slipping off the edge but i held up.
  • #25
  • May 7, 2018 9:53am May 7, 2018 9:53am
Hi Saoshyant,
Glad to see this post and exact problem that I'm trying to figure out a solution for. Nowhere close to it yet.
I encounter continuous stop outs due to this issue, recently most affected on almost all Swiss Franc pairs. Sad part is after the stop outs, price had free fall.
I use this as one of the confluence factors for reversal trade but not much luck. I got a lead to use Bollinger Bands, i.e. Double top/bottom formation where the second leg of the price (bottom/top) closes within the lower/upper band. Doesn't see to be addressing the issue though. Any thoughts/ideas are welcome.

p.s: I understand that no system can be fool proof and works 99 or 100%. The objective of this search is protect the capital & profit (if made) from these stop-outs.
  • #26
  • May 7, 2018 10:30am May 7, 2018 10:30am
Quoting rmchokku
Hi Saoshyant, Glad to see this post and exact problem that I'm trying to figure out a solution for. Nowhere close to it yet. I encounter continuous stop outs due to this issue, recently most affected on almost all Swiss Franc pairs. Sad part is after the stop outs, price had free fall. I use this as one of the confluence factors for reversal trade but not much luck. I got a lead to use Bollinger Bands, i.e. Double top/bottom formation where the second leg of the price (bottom/top) closes within the lower/upper band. Doesn't see to be addressing...
It's like you are speaking from my heart. I had the exact problem in USDCHF. Recently it has been going straight up without even much correction. I have almost never seen such a chart in my life! I was nearly half way through my capital until magically it went back for a correction and I got huge profit out of it. Not that it wasn't welcomed, but I was just trying to protect my capital.
I had a couple of bad lucks with this pair afterwards though.
I think one of the factors that is influencing our strategy here is the pairs that we trade on. Not all pairs are divergence friendly I guess.
I believe the volatile pairs like GPBJPY which has much movement can be an excellent choice to trade divergence on. We should avoid this god-forsaken CHF as well.
We could also look at volumes in the end of divergence to get a clue. As our friend 2dollardog suggested, Springs and Upthrusts have something to do with volumes.
Let me search on this to see if we can come up with a good volume indicator. I would be happy if you have anything in your stash.
  • #27
  • May 7, 2018 10:37am May 7, 2018 10:37am
Here's a good explanation of the RSI. If you like to use it, you should understand what it is and what it is saying. If you have already read it, then just ignore my post
Attached File(s)
File Type: pdf RSI-The Complete Guide-John Hayden.pdf   6.7 MB | 1,038 downloads
  • #28
  • May 7, 2018 12:18pm May 7, 2018 12:18pm
Quoting Sossos
Here's a good explanation of the RSI. If you like to use it, you should understand what it is and what it is saying. If you have already read it, then just ignore my post {image}
Many Thanks Sossos. I went through this book previously. I could understand little deeper on how RSI works and thats beautifully explained. However, I couldn't get a solution for multiple divergence.
  • #29
  • May 7, 2018 12:20pm May 7, 2018 12:20pm
A screenshot of multiple divergence where I encountered continuous stops recently.
Attached Image (click to enlarge)
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  • #30
  • May 7, 2018 12:33pm May 7, 2018 12:33pm
Quoting Sossos
Here's a good explanation of the RSI. If you like to use it, you should understand what it is and what it is saying. If you have already read it, then just ignore my post {image}

Thank you for this great book. I would gladly read it. After all, Knowledge is always welcomed.
  • #31
  • May 7, 2018 2:31pm May 7, 2018 2:31pm
Quoting rmchokku
{quote} Many Thanks Sossos. I went through this book previously. I could understand little deeper on how RSI works and thats beautifully explained. However, I couldn't get a solution for multiple divergence.
As a trader the first thing to understand is price action and an indicator is a confirming source. So there a couple of easy observations from the opening chart that was posted on the first page.

First, there was never a lower low, only higher lows on the way up. The first divergence was for a double top which then broke to a new high and then retested the ignition point of the move up. It didn't even get close to the structure low in the retest. In fact, it could only get to the half way point of the wide range bar that made most of the ground up to create the double top. Price held in the same area as the immediate retest after the WRB. Each push up acted the same way. The retracements could never get past the point of ignition on the WRB's.

Second, It's a little tough to tell what the readings were on the chart, but the RSI didn't get much lower than 50 on each pullback. Look where the RSI got to before the final high. Looks to me like 40 or lower, which means there were more down closes than up, a clue. Then the price action exhausts itself with a WRB up, followed be a WRB combo that easily takes out the POI of the upward WRB. The safe entry point is after the WRB combo down, fast short retest area, after the next drop which then is retested and creates the V. By then the RSI has touched 30 telling you that there are more down closes than up closes. The WRB peak would have been a good place to get out of your long position that should have happened in the strong run up and pullbacks. Then wait to see what the market offered after that.

No guessing or counter flow trading. Just taking what the market offers and joining in with what's happening on the chart.

I might add that it's all easy after the fact, but dissecting after the fact is the only way to learn. On the job trading.
  • #32
  • May 7, 2018 3:17pm May 7, 2018 3:17pm
Quoting saoshyant
{quote} Thank you for this great book. I would gladly read it. After all, Knowledge is always welcomed.
Book knowledge should always be verified, tested and then traded with small amounts of money, first. There are countless books out there that look good, but ultimately fail the traders test. That's why there are so few books, not to mention good books, on price action. Learn to look at price action without trying to find a trade. Learn to read what the market is saying. If you think you know what it's doing you can trade it any time frame in any direction, but by then you'll know better.

This book influenced me greatly. It will give you a basis to start from, on any chart. The 5 Sakata's aren't commonly talked about anywhere. Maybe Japan.
Attached File(s)
File Type: zip 88478465-The-Secret-Code-of-Japanese-Candlesticks.zip   2.4 MB | 913 downloads
  • #33
  • May 7, 2018 4:17pm May 7, 2018 4:17pm
Quoting rmchokku
A screenshot of multiple divergence where I encountered continuous stops recently. {image}
There is no need for both the RSI and the MACD on the same chart. They both say exactly the same thing using a different look.

What is it that your missing on this chart?

Ask yourself a couple of questions.

As a trader do you only look for divergences or can you trade continuations too?

How many longs did you miss?

Which direction paid better?

Which direction paid less?

At what point did you get a lower low and a lower high to suggest that the flow was changing?

If you went back and looked at successful divergences what are the common denominators held by each good one? The same for the failures?

Use your losers to learn from by looking beyond. Experiential learning works by understanding that you don't know what you don't know. Wanting to know changes that equation, but it requires work, time and patience with yourself.
  • #34
  • May 7, 2018 9:05pm May 7, 2018 9:05pm
Quoting Sossos
{quote} Book knowledge should always be verified, tested and then traded with small amounts of money, first. There are countless books out there that look good, but ultimately fail the traders test. That's why there are so few books, not to mention good books, on price action. Learn to look at price action without trying to find a trade. Learn to read what the market is saying. If you think you know what it's doing you can trade it any time frame in any direction, but by then you'll know better. This book influenced me greatly. It will give you...
I agree with you 100%. Thanks for sharing.
  • #35
  • May 7, 2018 9:15pm May 7, 2018 9:15pm
Quoting Sossos
{quote} There is no need for both the RSI and the MACD on the same chart. They both say exactly the same thing using a different look. What is it that your missing on this chart? Ask yourself a couple of questions. As a trader do you only look for divergences or can you trade continuations too? How many longs did you miss? Which direction paid better? Which direction paid less? At what point did you get a lower low and a lower high to suggest that the flow was changing? If you went back and looked at successful divergences what are the common denominators...
While checking out divergence, I check two out of three indicators (i.e. RSI, MACD, MACD histogram) whether provide the signal. This has helped me in avoiding some trades that didn't work out as intended. However, agree that RSI & MACD are of same family indicators.

I'm in the process of analysing the good & bad trades. Only that will give the edge & confidence to use the strategy. I love to trade continuation but unfortunately, it didn't work out well for me in the past and even if I win, the risk/reward was 1:1. So couldn't cover the losses. With divergence, risk/reward is good but all rewards are erased with multi divergence stop-outs. That doesn't mean I've concluded/closed on the strategies to use as improvements are a continuous process.
  • #36
  • May 7, 2018 9:19pm May 7, 2018 9:19pm
Quoting Sossos
{quote} As a trader the first thing to understand is price action and an indicator is a confirming source. So there a couple of easy observations from the opening chart that was posted on the first page. First, there was never a lower low, only higher lows on the way up. The first divergence was for a double top which then broke to a new high and then retested the ignition point of the move up. It didn't even get close to the structure low in the retest. In fact, it could only get to the half way point of the wide range bar that made most of the...
Thanks for your feedback. I'll look into this aspect
  • #37
  • May 8, 2018 4:18am May 8, 2018 4:18am
Quoting 2dollardog
{quote} Essentially, you are correct. That to which I refer is Springs and Upthrusts which seem to add an element of surprise rather than the more distinctive double tops. The pattern is designed to create a false breakout capturing liquidity on that last bar as it quickly descends. The finality is usually a very large pinbar via the H1 or H4 (mostly H4) for a very solid trend reversal. It is frequently followed by a bull trap as it gains...
Wyckoff way of understanding market structure is a great deal. I found it useful. The concept of Springs and Upthrusts are attractive but how to consistently & confidently trade them? Would you be able to share your thoughts on that.
  • #38
  • May 8, 2018 4:26am May 8, 2018 4:26am
Quoting saoshyant
{quote} It's like you are speaking from my heart. I had the exact problem in USDCHF. Recently it has been going straight up without even much correction. I have almost never seen such a chart in my life! I was nearly half way through my capital until magically it went back for a correction and I got huge profit out of it. Not that it wasn't welcomed, but I was just trying to protect my capital. I had a couple of bad lucks with this pair afterwards though. I think one of the factors that is influencing our strategy here is the pairs that we trade...
Divergence in Swissie doesn't work out well when we want it. Winning & drawdown in my account became worse due to this currency. We have tick volumes provided by some FX platform service providers. As FX market being decentralised, no single reliable source of volume is what I understand.
  • #39
  • May 8, 2018 10:04am May 8, 2018 10:04am
Quoting rmchokku
{quote} Wyckoff way of understanding market structure is a great deal. I found it useful. The concept of Springs and Upthrusts are attractive but how to consistently & confidently trade them? Would you be able to share your thoughts on that.


Sorry, my friend. I'm still learning. I went on to begin studying Wyckoff to explain what I was already seeing (not that there's anything special about my perspective). I'm still trying to understand/learn what Wyckoff was calculating with these.

I no longer have my charts marked up, but I will share: The DXY via the weekly as viewed from the daily has just entered a Wyckoff mark-up phase. Indeed, the DXY is extremely bullish. The mark ups viewed this phase to last over a couple years. Interestingly, EURUSD is the mirror opposite with a mirrored channel to the DXY and also has entered the mark down phase to span a couple years.

It's all about distribution and accumulation with the major moves in between. I think some reference this as supply and demand and there are differences. I'm inclined to believe the smartest thing for me to do is study Wyckoff's methods and begin viewing the charts from its perspective and I might be able to jump hoops over the other traders going by basic supply and demand. Again, a lot more study and work for me, but I think it's worth studying.
  • #40
  • May 8, 2018 10:59am May 8, 2018 10:59am
Quoting 2dollardog
{quote} Sorry, my friend. I'm still learning. I went on to begin studying Wyckoff to explain what I was already seeing (not that there's anything special about my perspective). I'm still trying to understand/learn what Wyckoff was calculating with these. I no longer have my charts marked up, but I will share: The DXY via the weekly as viewed from the daily has just entered a Wyckoff mark-up phase. Indeed, the DXY is extremely bullish. The mark ups viewed this phase to last over a couple years. Interestingly, EURUSD is the mirror opposite with a...
Best wishes. Share with us some learning too once you have done the study. Meanwhile, we will try to resolve the problem at hand.
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