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Pair Divergence Method

  • #561
  • Sep 26, 2009 1:52pm Sep 26, 2009 1:52pm
Point taken. Had I actually been trading these, I think this euro sell would have taken me out of the 1500 hours trade at break even.
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Hindsight is 20/20
  • #562
  • Edited Sep 29, 2009 10:48am Sep 28, 2009 1:10pm | Edited Sep 29, 2009 10:48am
How about this euro sell? It looks strange. Would it be a no-trade because the pairs didn't mimick each other one-for-one? I.e. U/C bar to bar went lower, higher, higher, where as E/U went lower lower higher?

edit: this trade hit profit
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Hindsight is 20/20
  • #563
  • Sep 28, 2009 1:16pm Sep 28, 2009 1:16pm
Quoting cosgrove
How about this euro sell? It looks strange. Would it be a no-trade because the pairs didn't mimick each other one-for-one? I.e. U/C bar to bar went lower, higher, higher, where as E/U went lower lower higher?
It's a good sell setup.
  • #564
  • Sep 29, 2009 10:31am Sep 29, 2009 10:31am
Hi there Bill,

I followed along when you first started with this thread but got distracted with one of my 9000 other projects. Anyway I'm back and I just wanted to catch up with the state of the art with your technique, so here are some questions:

1) Early on you said you traded H4 and H1 timeframes. Do you still favor these or do you trade others as well? I saw a few 15M posts from you.

2) Early on you proposed an ATRx2 SL and TP which I rather liked myself (I swing trade stocks this way). You said that maybe there's a better method for SL/TP. Has there been any change with SL/TP from the ATRx2 method?

3) I recall a rule you added where you didn't want any extra dips between the highs and lows you were comparing for divergence. I searched for this rule but couldn't find it; could you do a refresher on this "extra dip" rule please?

I'm glad to see you're still hanging in there with this thread and method. I appreciate it and it tells me your method has promise.
You are in a maze of twisty little passages, all alike.
  • #565
  • Sep 29, 2009 10:46am Sep 29, 2009 10:46am
Euro buy this morning would have been stopped out for a loss.
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Hindsight is 20/20
  • #566
  • Edited Sep 30, 2009 7:44am Sep 29, 2009 2:14pm | Edited Sep 30, 2009 7:44am
U/C sell on the 30m. Going towards profit but not there yet.

edit: this trade hit profit.
Attached Image (click to enlarge)
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Hindsight is 20/20
  • #567
  • Sep 29, 2009 6:40pm Sep 29, 2009 6:40pm
Quoting stevegee58
Hi there Bill,

I followed along when you first started with this thread but got distracted with one of my 9000 other projects....

I trade anything from 15M to 4H.
I fan through the TFs and look for setups.

I'm still using the 2xATR.

Later in the thread, I suggested trading only divergences that had no extra peaks or valleys.
The others work fine. I said that to try to make detecting them easier.
  • #568
  • Sep 29, 2009 8:43pm Sep 29, 2009 8:43pm
OK, so divergences with extra wiggles in between are fair game then as long as there are prominent swing lows and highs.

A couple of observations: The EA in the thread seems interesting but I think it may filter out valid tradable divergences. Also the original OverLayChartLINE.mq4 indicator seems to be better at scaling among the various time frames than the Overlay.ex4 indicator.
You are in a maze of twisty little passages, all alike.
  • #569
  • Sep 29, 2009 9:07pm Sep 29, 2009 9:07pm
Quoting stevegee58
OK, so divergences with extra wiggles in between are fair game then as long as there are prominent swing lows and highs.

A couple of observations: The EA in the thread seems interesting but I think it may filter out valid tradable divergences. Also the original OverLayChartLINE.mq4 indicator seems to be better at scaling among the various time frames than the Overlay.ex4 indicator.
The extra wiggles are fine if you want to trade them.

The definition given in the thread is without the wiggles.
  • #570
  • Sep 30, 2009 9:42am Sep 30, 2009 9:42am
OK, here's a trade I'm currently in. E/U made a lower low, but the inverse of U/C didn't so go long the inverse of U/C (i.e. go short U/C). Entered at 1.0394. SL 1.0445, TP 1.0344

http://i36.tinypic.com/34zd9iv.jpg
You are in a maze of twisty little passages, all alike.
  • #571
  • Sep 30, 2009 11:29am Sep 30, 2009 11:29am
Target hit +50 pips. I'm likin' this.
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Click to Enlarge Name: divergence.png Size: 13 KB
You are in a maze of twisty little passages, all alike.
  • #572
  • Sep 30, 2009 1:59pm Sep 30, 2009 1:59pm
U/C sell hit profit on the 15m. The trade also appeared on the 30m, but you would still be waiting for profit there.

If you trade fixed lots, I guess you would want to take trades on the higher timeframes to capture more pips; however, if you trade fixed fractional lots, I would think you'd want to get in and out as quick as possible, therefore trading the shortest TF.

Edit: oops, this is the same trade steve just posted.
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Hindsight is 20/20
  • #573
  • Sep 30, 2009 2:09pm Sep 30, 2009 2:09pm
I took a tally of the trades I've posted so far (beginning 9/10), and it looks like 7 winners, 2 losers, and two trades consisting of a break-even (entered, then got a signal the other way, would have gotten out at BE or close enough). Small sample size still, but pretty sweet!

As technology advances and the market gains more participants, do you think divergence of highly correlated pairs will eventually disappear, or will it become more prominent? Or will it stay the same, as one of those "always has been, always will be" kind of things?
Hindsight is 20/20
  • #574
  • Sep 30, 2009 2:48pm Sep 30, 2009 2:48pm
I'd read somewhere that the well-known correlation between EURUSD and USDCHF is due to similarities between the fundamentals of the EU and Swiss economies. So in relation to each other (i.e. EURCHF) their currencies are quite range bound. If the fundamentals of the EU and Swiss economies start to diverge, the correlation between EURUSD and USDCHF will decrease.

This argument applies to EURJPY and CHFJPY for instance. Their correlation on the daily time frame is in the 90's. I guess these pairs aren't as liquid as the classic one in this thread so don't get as much attention.

I guess what I'm saying is that the correlation won't be taken down by currency traders but through fundamental changes in the Swiss and European economies.

I'm an engineer, not an economist so take all this with a grain of salt.
You are in a maze of twisty little passages, all alike.
  • #575
  • Oct 1, 2009 10:06am Oct 1, 2009 10:06am
Divergence on M15. Short EU 1.4552, SL=1.4587, TP=1.4517
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You are in a maze of twisty little passages, all alike.
  • #576
  • Oct 1, 2009 10:14am Oct 1, 2009 10:14am
Quoting stevegee58
Divergence on M15. Short EU 1.4552, SL=1.4587, TP=1.4517
That will be a trade, but the entrance bar hasn't completed yet.

Your chart doesn't look right. How do you have the EURUSD line graph set up?
  • #577
  • Oct 1, 2009 10:27am Oct 1, 2009 10:27am
Quoting billbss
That will be a trade, but the entrance bar hasn't completed yet.

Your chart doesn't look right. How do you have the EURUSD line graph set up?
All I did was change the chart type to line. Was there something else in the chart properties?

Also, the rightmost peaks in my divergences were complete and I waited for price action to start moving in my direction. Should I have waited for the next bar to complete as well?
You are in a maze of twisty little passages, all alike.
  • #578
  • Oct 1, 2009 10:31am Oct 1, 2009 10:31am
Quoting stevegee58
All I did was change the chart type to line. Was there something else in the chart properties?

Also, the rightmost peaks in my divergences were complete and I waited for price action to start moving in my direction. Should I have waited for the next bar to complete as well?
Yes. You should have waited for the next bar to complete. At least that's how I do it. Do whatever works for you.

On the chart- put a simple MA - 1 period- Typical price.
Go to options and set the color of the line chart to "None".

Now when you switch to "Line" only the MA will be there representing the EURUSD.
  • #579
  • Oct 1, 2009 10:44am Oct 1, 2009 10:44am
Quoting billbss
Yes. You should have waited for the next bar to complete. At least that's how I do it. Do whatever works for you.

On the chart- put a simple MA - 1 period- Typical price.
Go to options and set the color of the line chart to "None".

Now when you switch to "Line" only the MA will be there representing the EURUSD.
OK, the chart is set up like yours. Actually the raw price line and the 1 period MA look almost the same.

So just to clarify. If I get two closed bars that show divergence, I wait for the next bar after that to close. If it closes in my direction, then I enter. Correct?

The way I played it was to wait until price moved in my direction but I didn't wait for the bar to close. Once I'm in the trade I manage it pretty actively but moving the stop to technical turning points as things unfold.
You are in a maze of twisty little passages, all alike.
  • #580
  • Oct 1, 2009 10:50am Oct 1, 2009 10:50am
Quoting stevegee58
OK, the chart is set up like yours. Actually the raw price line and the 1 period MA look almost the same.

So just to clarify. If I get two closed bars that show divergence, I wait for the next bar after that to close. If it closes in my direction, then I enter. Correct?

The way I played it was to wait until price moved in my direction but I didn't wait for the bar to close. Once I'm in the trade I manage it pretty actively but moving the stop to technical turning points as things unfold.
The two lines look close but there is a difference.
I've spent quite a bit of chart time proving to myself the MA typical price works better than the close. The closing price is very one dimensional. The typical price also takes in the range of the bar.

I wait for a close (both pairs) in the direction of the trade.
Many times if you enter in mid bar, price will turn on you and it winds up not being a divergence.


Also, the trade you entered ended in a long bar- it was about twice the range of the 14ATR.
I enter trades like that but I do it at a reduced lot size. They almost always retrace.
This one looks good so far.
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