Daily Divergent Candles Method

Hi guys,

I will share with you today a quiet and simple method which you can trade every day of the week with minimal time and effort.

At 0000 GMT every day pull up the D1 chart for the following pairs:

U/J, G/U, E/U, U/C, E/G

You are looking for a divergent candle from the recent close. My definition of a divergent candle:

Bullish Divergent Candle: Makes a lower low than the previous 5 candles but finishes in the green.
Bearish Divergent Candle: Makes a higher high than the previous 5 candles but finishes in the red.

On a bullish divergent candle, place two longs at the 0000 GMT open price with SL at the candle low - 5 pip buffer. TP1 at the same amount of pips as your SL and let the other long run until you get an opposite daily candle (i.e. short signal). If the next signal you get for that pair is a long, then move the SL up to the SL for the new position.
On bearish divergent candle place two sells at the 0000 GMT open price with SL at the candle high + 5 pip buffer. TP1 at the same amount of pips as your SL and let the other short run until you get an opposite daily candle (i.e. long signal). If the next signal you get for that pair is a short, then move the SL down to the SL for the new position.

The whole process should take less than thirty minutes each day, and across those five pairs you should get at least one signal a week.

This system will work very well if you use good MM and allows you to trade every signal without worrying about missing any. If you aren't awake for 0000GMT you can usually catch a retrace somewhere into the previous candle and take an even better position (less risk).

NB: You do not have to exit the position when you get an opposite signal, once the trade is free it can be very interesting to see what happens when you let the trades run. I have posted an example chart below, you can see the last buy signal would have netted something like 500 pips if you had let it run, but if you had exited the position on the opposite signal you would have got BE on long and short.

Good luck. I will start posting live trades for this method from the first 0000 GMT of next week.

Please note in the charts I post here

D1 candle consists of the 24H from 0000GMT.

Above chart was E/G, below is E/U, G/U to come.

G/U here. Not a lot of signals to be taken, but the ones it does give are quality, and other pairs will take up the slack.

U/J. Very interesting to see a few of those positions could have been held for months.

hi sinner, this looks like a very nice clean reversal method. I'm visually backtesting this on GU on different time frames looking at entries only.

thanks for sharing!

For the daily candle to correctly show as "closed" at new york close, wont we need to know what charting software you use? The program I use closes at 23gmt.

Hi Sinner,
Please take a look at the image attached below. Its your UJ picture.

Is this OK?

Thanks!

I use a java charting package provided by my broker, but whatever. Don't worry too much about the time zone issues. Just use the D1 candles provided in your charting package and wait for the next D1 candle to open as the time to place your trade.

FXpander, yes the 1-2-3-4 you posted seems correct, your TP1 will be hit in that case, and the remaining contract will remain on as a "free trade" (because TP1 and SL1 are equal). So in this case when you get stopped out the net effect is 0 on your balance.


I have been using this method on TF as low as M15 for some time. But in terms of expectancy, the only way this method works is if you can catch most/all of the divergent candles, so daily TF is the only one which really allows us to do this without writing an EA or sitting in front of the screen for 24 hours. H1 can work well for shorter term trading, as an example, but I don't recommend it (because the next divergent candle after you go to bed might be the one you wanted all night).

Hi guys I had a meeting which stopped me from posting the U/C chart I wanted to post before anyone else made comments but here it is now.

If this doesn't make you drool I don't know what will.



You will also note I include one buy signal with a cross underneath it, for me this daily candle is simply too tall so buying at the top of it would be a huge amount of pips to risk in a down-trend. I would not have taken this trade.

Ok guys, so you can see since April there have been roughly 60 signals on the pairs I suggest. Some were great, some not so great. If you have an opportunity to wait for a retrace into the signal candle, you can reduce your total risk (because the price will be closer to the SL level) but this is a whole other thing to be examined carefully.

Is 60 signals enough? That is about 10 a month or 1 every 3 days. You can include A/U, E/J, G/J and A/J if you like to get more total signals from the method but I am trying to keep it to the "fundamental pairs" which have the liquidity we desire.

There is no trade filter.

We are not trading with the trend. (although you can see in certain cases where only taking signals with the weekly trend would have been beneficial)

The goal is, (and yes I know we are all afraid of hearing this term) to pick tops and bottoms, be they intermediate or otherwise. If we can move into the "free trade" state as quickly as possible then we can IGNORE that position until the next signal comes from that pair then we re-evaluate the previous positions or continue holding them. The virtue of patience is obvious with this method, some of the signals provided can turn out to be the most envious positions to hold for months after.

Who here wouldn't be happy with a U/C short from 1.15 held from April or U/J short from 98 since June?

That's it for me today guys, post your questions I will get back to you tomorrow.

Hi Sinner,

How long been you trading this system?
Is it profitable to you? Do you have any win%?

THanks

Sinner,

Its looks good. I like how my initial results are. But while this gives alot of winners, there are some biggies, like a -1008 pip trade in may on the GU. thats huge hit, but with some smart MM it should be possible to eliminate stuff like that without impacting profitability.

Hi FXpander, I have been trading using divergent candles on different TF for almost a year now, but unconsistently so no there is no data from me as to how well it will do over a long period of time. My guess is, as long as you follow the rules strictly, use 1-2% risk per trade and trade across multiple pairs you will be fine. The idea is to bring an edge to bear over the market using MM to keep you in the game. I have seen much simpler strategies than this increase $500 by 1187% in less than two years simply by the application of discipline and good MM. See here:

http://infiniteyieldforex.blogspot.com/


geneticsjms, I have no idea how you managed to get a -1008 pip loss that is impossible with this method. Your SL should be at the opposite end of the divergent candle, the only way you could get a -1008 pip loss is if the D1 candle was 1008 pips tall! None of the fundamental pairs move that much in a day, and I already explained that if the candle is too tall then we don't want to risk that many pips anyway.

I think you made a mistake or a typo somewhere bro

This is interesting and worth testing. Adding some s/r into it and detection of trending/ranging environment might help as well. The one thing that I wonder about is: how did you arrive at the number 5 for the previous candles?

Tested an ea of this on metatrader, seems to have potential, post something up when I have the kinks sorted out.

EDIT: Think this ea is doing what you want, not completely sure though, MM might be a bit off, not got everything sorted since broker changed things up.

Making the right trades?

I like your system, and I going test it, ... it looks fresh

thanks for share

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swing trading tips

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The magic of arbitrary number picking. Think of the divergence range as simply the "input" to an indicator, same as you pick period 14 as default for your ATR or 12,26,9 for your MACD I picked 5 as the range for my divergence.

5 is good enough to remove incorrect divergent candles but still not filter out intermediate tops and bottoms.


errich_fx, thanks mate for your kind words, when I first joined this forum I viewed your posts with great interest love the generosity you display each day sharing your PA levels in the Interactive Trading area.


Good work Hutch, this is admittedly a method which can be traded mechanically.

Hello sinner. Nice thread you got going here. The last bullish candle that you have on the u/c chart, what day is that one? I use Ibfx, and I don't see that candle on my chart. Thanks.

23rd Sep according to my chart.

The first red arrow on my chart is sept. 17. The second red arrow on my chart is sept. 23. Based on your rules, I would have missed that nice bullish move. What broker are you using?