Do you believe in divergence? | Forex Factory

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Do you believe in divergence?

  • Poll

  • Do you believe that divergence in indicators is significant in predicting price?
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  • #1
  • First Post: Jul 10, 2008 2:40pm Jul 10, 2008 2:40pm
I don't know much about trading based on divergence in indicators and the price. However I have noticed that sometimes this can be fairly accurate in determining price movement...or maybe its just a coincidence. So my question is this..do you really believe that market actually reacts to divergence? If yes, why do you think the phenomenon of divergence moves the market?
  • #2
  • Jul 10, 2008 2:51pm Jul 10, 2008 2:51pm
This is going to be a very good discussion topic.
Here is a good online article on divergence trading
http://www.trading-naked.com/Divergence.htm

 Divergence is often said to be a leading indicator. Divergence is price action measured in relationship to various indicators ie., MACD, CCI, RSI, Stochastic and others or in relationship to another instrument or measure of the

Divergence in my opinion works but it only gives you heads on a pending trade but doesn't tell you when it will happen.

Please keep up the great posting on here.
"To Be A Successful Forex Trader, You Need A Successful Forex Mentor."
  • #3
  • Jul 10, 2008 2:58pm Jul 10, 2008 2:58pm
No more so than anything else.
  • #4
  • Jul 10, 2008 3:00pm Jul 10, 2008 3:00pm
The thing is. Divergence is always easy to spot looking back in time....
  • #5
  • Jul 10, 2008 3:14pm Jul 10, 2008 3:14pm
Quoting CTGUY
This is going to be a very good discussion topic.
Here is a good online article on divergence trading
http://www.trading-naked.com/Divergence.htm

 Divergence is often said to be a leading indicator. Divergence is price action measured in relationship to various indicators ie., MACD, CCI, RSI, Stochastic and others or in relationship to another instrument or measure of the

Divergence in my opinion works but it only gives you heads on a pending trade but doesn't tell you when it will happen.

Please keep up the great posting on here.
Thanks for posting that link. I didn't read it all but it cleared a few things. So my understanding is that weakness shown in the oscillators may indicate a reversal. But of course we all know market don't care what is happening on the lagging indicators.

Perhaps it has something to do with momentum. eg Price made a higher high but the indicator did not because according to calculations made by indicator the momentum of the trend has ran out. So this may give a high probability short opportunity.
  • #6
  • Jul 10, 2008 4:38pm Jul 10, 2008 4:38pm
Divergence = Voodoo.
The breaking of a wave cannot explain the whole sea.
  • #7
  • Jul 10, 2008 5:01pm Jul 10, 2008 5:01pm
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The thing is. Divergence is always easy to spot looking back in time...

Aint that the truth. If I could travel back to the past I'd be rich as sin.
  • #8
  • Jul 10, 2008 8:45pm Jul 10, 2008 8:45pm
Ultimately, the only reason why any indicator signal (divergence or otherwise) or chart pattern or price action (pick your poison) would "work" is because prices happen to be at a level where there's an imbalance between buyers & sellers at that level (often a pivot point such as major support/resistance). For every time you show me where an indicator works, I can show you another place (and another, and another) where the same setup would not work. So, use divergence & any indicator signal in the context of the broader picture, especially paying attention to important pivot points such as S/R.
Dave
  • #9
  • Jul 10, 2008 9:21pm Jul 10, 2008 9:21pm
Quoting good
I don't know much about trading based on divergence in indicators and the price. However I have noticed that sometimes this can be fairly accurate in determining price movement...or maybe its just a coincidence. So my question is this..do you really believe that market actually reacts to divergence? If yes, why do you think the phenomenon of divergence moves the market?
It sounds like star crossed lovers.

Market react to anything imo. It just keeps moving. divergences, ob/os, convergence, bounce are just conceived rules.

Gather enough anti-divergence setups and you can get a good system too.
Have you wondered why chart patterns exists? These book writers, they warp up your mind in amazing ways. lol.
  • #10
  • Jul 10, 2008 9:37pm Jul 10, 2008 9:37pm
Well, I would definitely have to say that the market doesn't react to divergence...but I can safely say that divergence reacts to the market!
Just keep in mind as you expand your trading education that the market reacts to one thing and one things only, its participants. Every indicator you use, every strategy you try, is just another way to try to gauge what the participants in the market are doing.

In my humble opinion, the ONLY "indicator" that the market might come close to reacting to is fib levels...and ironically that's not because Fibonnaci theory actually applies to market pricing, but rather because so many people think it does...

"Stocks don't sell for what they are worth, but for what people think they are worth." ~Garfield Drew
Kiss'n all the way to the top!
  • #11
  • Jul 10, 2008 11:15pm Jul 10, 2008 11:15pm
Quoting Clauticeo
Well, I would definitely have to say that the market doesn't react to divergence...but I can safely say that divergence reacts to the market!
Just keep in mind as you expand your trading education that the market reacts to one thing and one things only, its participants. Every indicator you use, every strategy you try, is just another way to try to gauge what the participants in the market are doing.

In my humble opinion, the ONLY "indicator" that the market might come close to reacting to is fib levels...and ironically that's not because Fibonnaci theory actually applies to market pricing, but rather because so many people think it does...

"Stocks don't sell for what they are worth, but for what people think they are worth." ~Garfield Drew
lol..can't agree more there. But unfortunately or fortunately lot of people think differently and view markets differently. A trader in london may think that he should buy at 50 fib while a trader in big apple may have all his orders stacked up near the 61 fib. And all this while some Japanese housewife may think trend is downward when price reaches 61 fib and will be looking to sell.

  • #12
  • Last Post: Jul 10, 2008 11:48pm Jul 10, 2008 11:48pm
Quote
lol..can't agree more there. But unfortunately or fortunately lot of people think differently and view markets differently. A trader in london may think that he should buy at 50 fib while a trader in big apple may have all his orders stacked up near the 61 fib. And all this while some Japanese housewife may think trend is downward when price reaches 61 fib and will be looking to sell.
ROFL, and at some point all of those folks are going to blow their account... because they're trading their thoughts and not the market. It doesn't matter what we think will occur, what matters is what is occurring right now... and whether we're ready and willing to take advantage of it.

If divergence helps you see something in the market that lets you trade it, more power to it. If it doesn't, then it doesn't.

Voodoo. It works because people believe. What they believe in doesn't matter, just that there is a belief... is all that's needed.
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