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Pair Divergence Method

  • #481
  • Sep 14, 2009 8:47am Sep 14, 2009 8:47am
Quoting cosgrove
The question I like to ask myself on trades that aren't no-brainers: "is the underlying concept/reason of the trade still evident?"

In the attached chart, I would say yes on both highlighted red areas.

In the first, U/C is exactly flat where E/U is dramatically down; this is still divergence in my book (but what do I know ). Had the slope of the first U/C line even been slightly negative, I would have counted it out.

In the second highlighted area, sure, the swing high of the second E/U peak is technically one bar off, but look at...
I do the same thing, as you, when I'm trading.

I tried to make this a totally mechanical system, so there is no doubt and no fudging on the entrances.
It will make money trading it that way- which is very rare.

Systems with discretionary components aren't systems.
  • #482
  • Edited 1:57pm Sep 14, 2009 1:41pm | Edited 1:57pm
Quoting billbss
Here is a chart of EURCHF.
There are at least three tradeble divergences between EURUSD and USDCHF,(as described by the system) during this time- maybe more.

Strip the complexity out of it for us.
Use this chart and point out the system trades. Then tell us how you detected them. I would like to know how to do it.

You trade it like you'd trade any other. I cannot understand why you need to look at three to trade one, as the price movement in the one you are trading is all that really matters, since that is what determines your result.

All the divergence (which is actually what this pair is) shows you is the relative strength of the two currencies you are NOT trading, and I cannot see the relevance there.

Quoting artov
The reason why I wouldn't trade directly EUR/GBP is the low volatility and high spread of that pair compared to EUR/USD and GBP/USD.

Just as an example I have taken Friday's range for those pairs;

EUR/USD: 74 pips with a 2 pip avg. spread.
GBP/USD: 84 pips with a 3 pip avg. spread.
EUR/GBP: 33 pips with a 4 pip avg. spread.

I hope that explains why it's a lot more interesting to trade EUR/USD and GBP/USD.
Actually the spread is the major factor, since the per pip value would make up the difference in profit/loss. $/pip is much higher on the EUR/GBP pair so the spread also being higher would tax the profits.

The lower range is the reason for the correlation, which brings me to another thought.....

Since the two are so strongly correlated, and this correlation is long standing, any deviation would have a high probability of being of small nature and short duration, since the two pairs are likely to return to the normal correlation.

Would it not, therefore, be a better signal, when the two pairs show movent in unison rather than divergence? Moves in unison show the relative strength or weakness in the $ which is the actual "mover" in the triad, and the currency you are trading against, and this is more likely to produce bigger and more sustained moves, thus giving better trade results.

I do not mean to butt in or offend, but trading on divergence just seems to be a lower probability strategy.

As I said before, I am missing the point of the exercise completely.

I do look for correlation in pairs, but only to confirm which currency is the real "mover" and then determining which is the most likely of that currency's pairing to give best trade. (As you show above, cable is normally a very good mover when trading the $).
  • #483
  • Sep 14, 2009 1:51pm Sep 14, 2009 1:51pm
Quoting bigtent
You trade it like you'd trade any other. I cannot understand why you need to look at three to trade one, as the price movement in the one you are trading is all that really matters, since that is what determines your result.
I suspect you don't understand because you don't know what we're doing. Your posts bear strong evidence of that.

We only trade one pair, for starters. We do not hedge the pairs. We do not look at three pairs. Trading EURCHF would approximate a hedge . That's not what this system does.

Read a little bit of the thread so you know what's going on and then if you have any suggestions, I'll be happy to read them.
  • #484
  • Edited 2:38pm Sep 14, 2009 2:03pm | Edited 2:38pm
Quoting bigtent
You trade it like you'd trade any other. I cannot understand why you need to look at three to trade one, as the price movement in the one you are trading is all that really matters, since that is what determines your result.

All the divergence (which is actually what this pair is) shows you is the relative strength of the two currencies you are NOT trading, and I cannot see the relevance there.



Actually the spread is the major factor, since the per pip value would make up the difference in profit/loss. $/pip is much higher on the EUR/GBP...
all we want is that YOU show for us where were the entries and exits in the chart he posted.
  • #485
  • Sep 14, 2009 3:14pm Sep 14, 2009 3:14pm
Quoting bigtent
You trade it like you'd trade any other.
I don't know how you trade. If you are profitable by just looking at price on a chart, congratulations! It is a feat that many hope to accomplish.

In this thread, we are examining what appears to be a high probability win rate method with entry triggers based upon the correlation of two currency pairs. There are other threads on forexfactory that deal with trading crosses such as EUR/CHF outright; however, they are not exactly analogous to this method.

This last bit concerns me that we may not be comparing apples to apples:
Quoting bigtent
I do look for correlation in pairs, but only to confirm which currency is the real "mover" and then determining which is the most likely of that currency's pairing to give best trade. (As you show above, cable is normally a very good mover when trading the $).
You say you look for correlation, but then propose that you can find correlation by looking at pip range alone, which simply isn't true. Maybe you can clarify?
Hindsight is 20/20
  • #486
  • Sep 14, 2009 4:05pm Sep 14, 2009 4:05pm
Euro buy would have closed for profit on the 15m. Were there any others today on the 15m? I didn't see any on a quick glance.
Attached Image (click to enlarge)
Click to Enlarge Name: eurusd_buy_200909140845.gif Size: 19 KB
Hindsight is 20/20
  • #487
  • Sep 14, 2009 4:17pm Sep 14, 2009 4:17pm
Quoting cosgrove
Euro buy would have closed for profit on the 15m. Were there any others today on the 15m? I didn't see any on a quick glance.
There was one at 6:45 GMT. It hit profit.
  • #488
  • Sep 14, 2009 7:17pm Sep 14, 2009 7:17pm
Hi,

I would like to know if there are trades according to rules just prior and after the vertical line. Yellow line is reversed USDCHF. So prior to the line would be a sell USDCHF and after a buy EURUSD?

Thanks.

http://i26.tinypic.com/ndlb4p.gif
  • #489
  • Sep 14, 2009 7:24pm Sep 14, 2009 7:24pm
Quoting chamane
Hi,

I would like to know if there are trades according to rules just prior and after the vertical line. Yellow line is reversed USDCHF. So prior to the line would be a sell USDCHF and after a buy EURUSD?

Thanks.

http://i26.tinypic.com/ndlb4p.gif
Neither would be trades according to the system, as they appear on your chart..
  • #490
  • Sep 14, 2009 7:28pm Sep 14, 2009 7:28pm
Quoting billbss
Neither would be trades according to the system, as they appear on your chart..
I suspect that the reason is because the real yellow bottom is slightly at the right of the vertical line whereas the black bottom is right on the line...
  • #491
  • Sep 14, 2009 7:37pm Sep 14, 2009 7:37pm
Quoting chamane
I suspect that the reason is because the real yellow bottom is slightly at the right of the vertical line whereas the black bottom is right on the line...
The one to the left of the line had an extra wave in the yellow pair.

The one to the right, the last valley wasn't in sync.

That one was a trade on my chart. I suspect you have your lines drawn wrong.
  • #492
  • Sep 14, 2009 8:02pm Sep 14, 2009 8:02pm
Quoting billbss
The one to the left of the line had an extra wave in the yellow pair.

The one to the right, the last valley wasn't in sync.

That one was a trade on my chart. I suspect you have your lines drawn wrong.
How can that be? I understand the extra wave at the first vertical line, but at the second and third, everything looks in sync to me.

http://i30.tinypic.com/2cxazye.gif
  • #493
  • Sep 14, 2009 8:09pm Sep 14, 2009 8:09pm
Quoting chamane
How can that be? I understand the extra wave at the first vertical line, but at the second and third, everything looks in sync to me.

http://i30.tinypic.com/2cxazye.gif
I don't know.
The valleys at the first vertical line are in sync on my chart. They aren't on your chart. It may be the difference in the data feed.
  • #494
  • Sep 14, 2009 8:19pm Sep 14, 2009 8:19pm
Quoting billbss
I don't know.
The valleys at the first vertical line are in sync on my chart. They aren't on your chart. It may be the difference in the data feed.
That is not reassuring. I think I will be following the strategy with two different charts one on top of the other with no indicator. Thanks for answer.
  • #495
  • Sep 14, 2009 8:24pm Sep 14, 2009 8:24pm
Quoting chamane
That is not reassuring. I think I will be following the strategy with two different charts one on top of the other with no indicator. Thanks for answer.
I don't think it's anything to worry about.
The next time it may be good on your chart and not on mine.
That's the difference in brokers.
Using two charts won't help anything.
  • #496
  • Sep 14, 2009 9:55pm Sep 14, 2009 9:55pm
I just identified a little bug with the EA regarding the signal at 6:30 GMT. If you were looking at a USDCHF chart with the EURUSD overlay you would have gotten a signal, but visa versa and it would not have signalled.

I also found another little bug where it may send more than one email for a long signal.

Once I put the EA and Overlay into a single indicator I'll release it.

Hope everyone made a few percent today
  • #497
  • Sep 14, 2009 10:01pm Sep 14, 2009 10:01pm
Quoting LucidObscuri
I just identified a little bug with the EA regarding the signal at 6:30 GMT. If you were looking at a USDCHF chart with the EURUSD overlay you would have gotten a signal, but visa versa and it would not have signalled.

I also found another little bug where it may send more than one email for a long signal.

Once I put the EA and Overlay into a single indicator I'll release it.

Hope everyone made a few percent today
Mine signaled on the EURUSD chart.
  • #498
  • Sep 14, 2009 10:08pm Sep 14, 2009 10:08pm
Here's some feedback, if it helps.

The divergence I gave marked with the white arrows isn't valid because of the extra wave in the overlayed pair.

I still have the problem of the overlayed pair shifting because of missing bars. Maybe nothing can be done about it.
Attached Image (click to enlarge)
Click to Enlarge Name: eu5.gif Size: 41 KB
  • #499
  • Sep 14, 2009 10:32pm Sep 14, 2009 10:32pm
Quoting billbss
Here's some feedback, if it helps.

The divergence I gave marked with the white arrows isn't valid because of the extra wave in the overlayed pair.

I still have the problem of the overlayed pair shifting because of missing bars. Maybe nothing can be done about it.
I can't seem to duplicate the shifting, though I could before I made some changes. Have you tried a right click | refresh on the chart?

Ahh, you're right. I know what the problem is. I can solve that.

I'll put it in the next release which will be just one indicator which will draw both lines and the signals.
  • #500
  • Sep 15, 2009 8:35am Sep 15, 2009 8:35am
Quoting billbss
I don't think it's anything to worry about.
The next time it may be good on your chart and not on mine.
That's the difference in brokers.
Using two charts won't help anything.
I'm seconding this...
Hindsight is 20/20
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