Divergence query

Which is stronger or more significant - normal divergence or hidden divergence? I've been experimenting with the Commodity Channel Index as an indicator of divergence and potential reversals. Normal divergence seems to give a pretty good indication of a reversal. However sometimes it just seems to represent a slowdown and consolidation of price before another burst up or down. Then it appears the indicator was simply forming a hidden divergence demonstrating continuation of the trend.

It just seems the divergence between the price and the indicator can potentially mean a move in either direction depending how you look at it. I'll try to post some examples of what I mean if I can work out how to save and upload a few charts. But I'm sure some of you know what I mean. A zig-zag pattern on price and the indicator could mean two things depending on whether you are looking at the peaks or troughs.

Any comments?

Edited to add:

Also I'm curious about trends that occur on the CCI indicator. Sometimes it will bounce off a trend line several times as it climbs or descends. However, I'm not sure yet whether a break/continuation of such a trend line holds any significance. Does a trending CCI reveal any clues of potential price action?

For the most part, while divergence is one thing to watch for on indicators, the King of divergence indicators is the MACD since the " D " part stands for DIVERGENCE.

the CCI is a resistance/support type of indicator, in that if one is in an uptrend, you will find the CCI "tops" when it reaches resistance for that particular time and place, and invariably you will get a reversal, even if every other indicator is showing a continuation.

during the retrace, the CCI heads down and bottoms, showing it has reached the support level ---- unfortunately, without using an accurate support and resistance chart overlay, you will not know PRECISELY where to exit, but will be WARNED that point is approaching by the CCI.

Now the CCI starts back up and the trend continues until the CCI once again reaches the top, the price hits another resistance level, and the price retraces yet again, followed by the CCI

this continues until you reach ABSOLUTE RESISTANCE, which will invariably be the bols, and if the bols does NOT move up, thats all she wrote for the moment and its best to close out and take your pips !

enjoy and trade well

mp

Thanks for your response. I will try the MACD. I mean to spend time watching all the oscillators to find the one that best suits me. By "bols", are you referring to bollinger bands? Do you put them on price or the oscillator?

While going through the archives, I also came across this thread on the same topic. A couple of posters linked several websites and attachments that have been really helpful to me, so I'll link the thread here:

http://www.forexfactory.com/showthread.php?t=8707

hey

bollinger bands it be and they go on your main chart ---- there are trading "methods" for using the bols, but we ONLY use them as another support or resistance area, and when we finally finish, you will have a chart showing you EVERY place you can take profit, be you a short term or longer term trader because what we do here is work with support and resistance, and use the indicators ONLY to show strength of the present move, and strength of the TOTAL move.

a touch different than many concepts, but absolutely proven to put pips in the pocket and smiles on the face.

enjoy and trade well

mp

I've traded normal and hidden divergences in the past, and I can certainly say there isn't one more significant. It depends on many variables such as market type (trending/ranging), time of day it happens, market volatility and more.
The indicators I found to be the most useful for spotting divergences are macd and rsi.
While with rsi you detect divergences faster, the macd helps you spot divergences you might have missed on the chart.
Are you planning to use the divergence as a system on it's own?
I have found it useful to act as a confirmation step for an existing system.

Divergence is a right way to go......
I coded this for personal use, and it is No1 indicator
for my trading(along with BB&ZigZags)
MACD is a trend indicator, while STOCH is a momentum indi......on rare ocassions, they will both
give you a divergence signal, and then you can be almost 100% sure to make some pips!
I played with almost any possible divergence indicator(coded bunch of them), and if you ask me,
MACD & STOCH is best!!!
And normal divergence or hidden divergence doesnt make some difference, to much variables involved!

This is a pic of my whole system...the round arrows are divergence, both hidden & regular.

I glance at it every now and again, but i came up with my own divergence indicator a while back ---- but you might like it and it seems to work nicely on the macd.

mp

Hello FOREXflash,

The indicator you posted is really great for giving a heads up for divergence. You said you had coded some other divergence indicators.....did you do one for RSI perhaps? would you mind posting what other divergence indicators you have? you did such a fantastic job with this one !

I am looking at divergence with "the Trend"....I do not know what your system is looking for, but your chart example shows the type of trades I am looking for. One the left side of the chart you posted, price is below the middle Bollinger and retraces back toward it. There are two Orange signals that give divergence with "the trend"...since 5 min chart short term scalping is possible.

I am looking also at RSI setting of 4 on various time frames.

would be great to have a divergence indicator like the one you posted that will give signals also for RSI

thanks if you wish to reply

Thanks for MACD&STOCH on chart divergence indicator, flash, I like it very much.

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RSI divergence

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