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Pair Divergence Method

  • #21
  • Mar 30, 2009 3:03am Mar 30, 2009 3:03am
Dear Bill,

Can you describe the theory a bit more of why the nature of this divergence should/does work? Why is it that on a long the pair that makes the lower low should follow and follow-through toward the pair that didn't make the lower low (and the opposite on a short)?

Thanks,

Lenoxer
  • #22
  • Mar 30, 2009 3:18am Mar 30, 2009 3:18am
Very interesting system. Can anyone please explain how we can set SL and TP at 2x ATR 14. I really don't know what that means.
  • #23
  • Mar 30, 2009 4:24am Mar 30, 2009 4:24am
Quoting Lenoxer
Dear Bill,

Can you describe the theory a bit more of why the nature of this divergence should/does work? Why is it that on a long the pair that makes the lower low should follow and follow-through toward the pair that didn't make the lower low (and the opposite on a short)?

Thanks,

Lenoxer
I think you're talking about the trade entrance.
Seeing an upward movement (for longs) in both pairs, helps insure that an upward movement (for longs) of the pair you are going to trade, is not random, since both pairs have agreed on it.
  • #24
  • Mar 30, 2009 4:30am Mar 30, 2009 4:30am
Quoting seb
Very interesting system. Can anyone please explain how we can set SL and TP at 2x ATR 14. I really don't know what that means.
There is an MT4 indicator named "Average True Range".
It computes the heights (ranges) of the bars (H minus L) and averages them.
An ATR 14, is the average range of the last 14 bars.
When you enter a trade, look at the current ATR 14.
Double it and use that number for your SL and TP.
  • #25
  • Mar 30, 2009 4:36am Mar 30, 2009 4:36am
Bill It's Looking Good,
Thanks for sharing this
Pip!
  • #26
  • Mar 30, 2009 4:48am Mar 30, 2009 4:48am
Ah yes, pair triangles.

If both EURJPY and USDJPY are going up, then it means JPY is getting weaker relative to the movements of the EURUSD. Divergence between the pairs could be seen in large movements in the EURUSD. The old saying "sell weakness, buy strength" comes into play here. Ie: Buy the strongest of the correlated JPY pairs if JPY is showing weakness, or sell the weakest if it's showing strength.

The rest is all about getting a good low-risk entry.

I routinely trade the GBPUSD/EURGBP/EURUSD triangle. Simulataneous moves in the GBPUSD and the EURUSD indicate an underlying move in the dollar (which lately has correlated to DOW futures very well). Whereas large matching moves in the GBPUSD and the EURGBP indicate moves in the pound, oftentimes with little underlying dollar movement. Trading these underlying moves helps to ensure there's momentum for your trade.
  • #27
  • Mar 30, 2009 6:06am Mar 30, 2009 6:06am
Quoting billbss
Here are a couple more examples.

In the first chart, GBP/JPY is making a new High (4) and EUR/JPY (2) is not.
We will be going short on the EUR/JPY.
We wait until both pairs turn down together. That is where the arrow is. We go short EUR/JPY.
We set out SL at 2x ATR 14. We set out TP the same.

In the second chart EUR/JPY makes a new Low (2) and GBP/JPY does not.
We will buy the GBP/JPY when both pairs turn up.
This happens at the arrow.

We go Long GBP/JPY. The SL and TP are as...
This looks great

But why do you short/long one currency pair at one time? Why not both?

Am I missing something here!!
  • #28
  • Mar 30, 2009 6:14am Mar 30, 2009 6:14am
How do you normalize data ?


Quoting redpine
The best way I know to compare two data sets on the same chart is to normalize the data. This would allow you to place all the pairs you want on the same charts with values between 0.0 and 1.0.

Just a random 3 AM thought.

Dan
  • #29
  • Mar 30, 2009 6:40am Mar 30, 2009 6:40am
If you absolutely must complicate things, subtract the difference between MACDs (1 for each pair). A 21/3 (or whatever) on both, subtract the differences between the 2 divergences, gives you the net divergence trend. Buy strength, sell weakness.
  • #30
  • Mar 30, 2009 6:47am Mar 30, 2009 6:47am
Thanks for sharing this billbss, this looks great. Its hard to ignore results. I'm going to spend some time studying this.
  • #31
  • Mar 30, 2009 8:28am Mar 30, 2009 8:28am
Sorry for newbie question but how do you know if a pair makes a lower low or higher high ?

Thanks,
  • #32
  • Mar 30, 2009 8:41am Mar 30, 2009 8:41am
Quoting Justin
This looks great

But why do you short/long one currency pair at one time? Why not both?

Am I missing something here!!
Why would you want to short both?
  • #33
  • Mar 30, 2009 8:47am Mar 30, 2009 8:47am
Quoting tokyomaster
Sorry for newbie question but how do you know if a pair makes a lower low or higher high ?

Thanks,
Look at this chart.

The top pair made a lower Low at (2). It fell below the last low, which was (1)

The bottom pair has basically the same shape as the top, but when the top made the lower low, the bottom pair didn't (4). It stayed above the last low (3).
Attached Image (click to enlarge)
Click to Enlarge Name: div3.gif Size: 77 KB
  • #34
  • Mar 30, 2009 8:50am Mar 30, 2009 8:50am
It's funny how the pairs alternate in doing this..
  • #35
  • Mar 30, 2009 9:02am Mar 30, 2009 9:02am
So, do you always have 2 orders open. i.e. short/long long/short ?
  • #36
  • Mar 30, 2009 9:05am Mar 30, 2009 9:05am
Quoting tokyomaster
So, do you always have 2 orders open. i.e. short/long long/short ?
I don't ever have two orders open.
  • #37
  • Mar 30, 2009 9:19am Mar 30, 2009 9:19am
billbss how long do you usually keep them open? are you using a trailing s/l?
  • #38
  • Mar 30, 2009 9:37am Mar 30, 2009 9:37am
Quoting hoki
billbss how long do you usually keep them open? are you using a trailing s/l?
For experimental purposes, I am using 2x ATR (14) for both the SL and TP.
I stay in a trade until one of those is reached.
No trailing stop.

This is something that I'm sure can be improved upon.
There might be a better way to exit, although i don't like trailing stops or taking partial profits.
  • #39
  • Mar 30, 2009 9:45am Mar 30, 2009 9:45am
bill, best thread I've read in a looong time. THANKS!!!
  • #40
  • Mar 30, 2009 9:55am Mar 30, 2009 9:55am
Quoting RedPadisha
bill, best thread I've read in a looong time. THANKS!!!
Your welcome and thank YOU.
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