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The Big "D" Method

  • #1
  • First Post: Edited Dec 1, 2010 12:11am Nov 30, 2010 9:13pm | Edited Dec 1, 2010 12:11am
I would like to show you how I trade using the big "D" (divergence) on the higher time frames. Divergence trading is nothing new and has been around for years. I use it on the 4hr charts and higher, but you can use it on whatever time frame you like. There are two types of divergences, regular divergence and hidden divergence. I mostly look for regular divergence.

Regular Divergence is a sign of a possible trend reversal. When price is making lower lows, but the oscillator is making higher lows, this is regular bullish divergence. When price is making higher highs, but the oscillator is making lower highs, this is regular bearish divergence.

Hidden Divergence is a sign of a possible trend continuation. When price is making higher lows, but the oscillator is making lower lows, this is hidden bullish divergence. When price is making lower highs, but the oscillator is making higher highs, this is hidden bearish divergence.

Let's move on. I use four tools for this method:
1) Macd 12,26,1
2) 21 and 200 emas set to close
3) Fractals
4) Trend Lines(Very Important)

Time Frame: Any
Pairs: Any

Your chart should look like this. This is a live trade, and I'm currently over 600 pips in profit on this pair. I have to go to bed now. I'll post the entry/exit rules and more live trade examples later. Good nite.
Attached Image (click to enlarge)
Click to Enlarge Name: eurusd.gif Size: 21 KB
  • #2
  • Nov 30, 2010 10:00pm Nov 30, 2010 10:00pm
Hi lgtj

I am a fan of 'D' but not too sucessful.
Might be I just use the visual clues and mark them like the pic.
Be interested to see how you use all the extras
Attached Image
  • #3
  • Edited Dec 1, 2010 12:13am Nov 30, 2010 11:17pm | Edited Dec 1, 2010 12:13am
I use the 200 ema for the overall trend and, I use the 21 ema to show me momentum of the trend. The fractals are used to show me key areas of support/resistance, and the macd is used to show me divergence along with price action. The trend lines are plotted to show the trend of the higher time frames. I'll use eurusd daily for example. First, I plot my trend lines on the monthly and weekly charts, and I look at the macds and price action on these time frames for divergence. Then I go to the daily chart to see where price is in the trend. Once I see where price is, I'll look for divergence and plot trend lines on the daily chart. In this case, regular bearish divergence was found on the daily chart.
Attached Image (click to enlarge)
Click to Enlarge Name: eurusd m1.gif Size: 25 KB

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  • #4
  • Nov 30, 2010 11:29pm Nov 30, 2010 11:29pm
Once divergence has been established, and the trend lines plotted, we must wait for a trend line to be broken with a closed candle. When a candle breaks and closes below the trend line, we enter at the open of the next candle.
Attached Image (click to enlarge)
Click to Enlarge Name: eurusd d1.gif Size: 23 KB
  • #5
  • Nov 30, 2010 11:33pm Nov 30, 2010 11:33pm
Hi lgtj,

Would you please post the MACD indicator? As mine one is a bit diff from you. Thanks
  • #6
  • Nov 30, 2010 11:41pm Nov 30, 2010 11:41pm
Once we're in a trade, we must wait for price to develop and go in the desired direction. When price has gone our way, plot a trend line with the trend. When price retraces and breaks the trend line with a closed candle, exit the trade. In this case, the entry was at 1.38622, and the exit was 1.36555 for a total of 206 pips.
Attached Image (click to enlarge)
Click to Enlarge Name: eurusd d1.gif Size: 20 KB
  • #7
  • Nov 30, 2010 11:43pm Nov 30, 2010 11:43pm
Quoting sam2vt
Hi lgtj,

Would you please post the MACD indicator? As mine one is a bit diff from you. Thanks
Hello sam. It's the macd on my metatrader platform. I made a mistake with the settings on the first post. It's 12,26,1.
  • #8
  • Nov 30, 2010 11:52pm Nov 30, 2010 11:52pm
As long as the trend is in place, we can continue to enter with the trend. After we exit the market, we wait for the pullback to develop and plot another trend line. When that trend line is broken with a closed candle, we enter at the open of the next candle. This is the live trade that I'm currently in. When price breaks the new trend line with a closed candle, I'll exit this trade.
Attached Image (click to enlarge)
Click to Enlarge Name: eurusd d1.gif Size: 21 KB
  • #9
  • Nov 30, 2010 11:56pm Nov 30, 2010 11:56pm
This is the way that I trade with divergence. God bless you all.
  • #10
  • Dec 1, 2010 12:04am Dec 1, 2010 12:04am
Here's a live example of hidden bearish divergence.
Attached Image (click to enlarge)
Click to Enlarge Name: eurchf.gif Size: 26 KB

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Click to Enlarge Name: eurchf 2.gif Size: 21 KB
  • #11
  • Dec 1, 2010 12:19am Dec 1, 2010 12:19am
[quote=lgtj;4211557]I use the 200 ema for the overall trend and, I use the 21 ema to show me momentum of the trend. The fractals are used to show me key areas of support/resistance, and the macd is used to show me divergence along with price action. The trend lines are plotted to show the trend of the higher time frames. I'll use eurusd daily for example. First, I plot my trend lines on the monthly and weekly charts, and I look at the macds and price action on these time frames for divergence. Then I go to the daily chart to see where price is in the trend. Once I see where price is, I'll look for divergence and plot trend lines on the daily chart. In this case, regular bearish divergence was found on the daily chart.

G'day Ltgj
Your use of divergence and trendlines seems simple enough but I'm unclear as to what part the fractals and ma's play.
Cheers
We are all One. Be present. Be the Observer
  • #12
  • Dec 1, 2010 12:20am Dec 1, 2010 12:20am
Hi LTGJ,

Simple, clear way of trading. Thank you for sharing. From the examples you have posted so far, you seem to prefer the daily chart. Where do you place your stop loss or what size stop loss do you use?
  • #13
  • Dec 1, 2010 4:55am Dec 1, 2010 4:55am
[quote=Iamfx;4211654]
Quoting lgtj
I use the 200 ema for the overall trend and, I use the 21 ema to show me momentum of the trend. The fractals are used to show me key areas of support/resistance, and the macd is used to show me divergence along with price action. The trend lines are plotted to show the trend of the higher time frames. I'll use eurusd daily for example. First, I plot my trend lines on the monthly and weekly charts, and I look at the macds and price action on these time frames for divergence. Then I go to the daily chart to see where price is in...
Hello Iamfx. The fractals show me where to plot my trend lines, and the emas are used for the overall trend direction and momentum. General rule of thumb, if price is below the 200 ema, the trend is down. If price is above the 200 ema, the trend is up. I also use the the 200 ema for support and resistance. Look at the last chart that I posted above of eurchf. The overall trend is down, but price rallied up to the 200 ema and bounced off of it twice and headed back down. The 21 ema is used for the shorter term trend. Usually when price is above or below both emas, then there is good trend strength and momentum.
  • #14
  • Dec 1, 2010 4:57am Dec 1, 2010 4:57am
[quote=lgtj;4212396]
Quoting Iamfx
Hello Iamfx. The fractals show me where to plot my trend lines, and the emas are used for the overall trend direction and momentum. General rule of thumb, if price is below the 200 ema, the trend is down. If price is above the 200 ema, the trend is up. I also use the the 200 ema for support and resistance. Look at the last chart that I posted above of eurchf. The overall trend is down, but price rallied up to the 200 ema and bounced off of it twice and headed back down. The 21 ema is used for the shorter term trend. Usually...
OK thanks
We are all One. Be present. Be the Observer
  • #15
  • Dec 1, 2010 5:01am Dec 1, 2010 5:01am
Quoting fxpilot
Hi LTGJ,

Simple, clear way of trading. Thank you for sharing. From the examples you have posted so far, you seem to prefer the daily chart. Where do you place your stop loss or what size stop loss do you use?
Hello fxpilot. Yes, I prefer the daily charts because I have a full time day job, and I don't have time to monitor the charts. I don't use a stop loss because I prefer to let the market tell me when to close my trades whether it's a win or a loss. If you prefer to use a stop, you could place it a few pips above/below the previous swing high/low.
  • #16
  • Dec 1, 2010 9:49am Dec 1, 2010 9:49am
Quoting lgtj
Hello sam. It's the macd on my metatrader platform. I made a mistake with the settings on the first post. It's 12,26,1.
Got it. Thanks...
  • #17
  • Dec 1, 2010 7:11pm Dec 1, 2010 7:11pm
Quoting lgtj
As long as the trend is in place, we can continue to enter with the trend. After we exit the market, we wait for the pullback to develop and plot another trend line. When that trend line is broken with a closed candle, we enter at the open of the next candle. This is the live trade that I'm currently in. When price breaks the new trend line with a closed candle, I'll exit this trade.
Attachment
I exited this trade because a closed candle broke the trend line. Now I'll wait for a pullback to develop. Entry was at 1.35986, and the exit was at 1.31144. The total is 484 pips.
Attached Image (click to enlarge)
Click to Enlarge Name: eurusd.gif Size: 19 KB
  • #18
  • Dec 1, 2010 7:13pm Dec 1, 2010 7:13pm
Quoting lgtj
As long as the trend is in place, we can continue to enter with the trend. After we exit the market, we wait for the pullback to develop and plot another trend line. When that trend line is broken with a closed candle, we enter at the open of the next candle. This is the live trade that I'm currently in. When price breaks the new trend line with a closed candle, I'll exit this trade.
Attachment
I exited this trade also because a closed candle broke the trend line. Entry was at 1.32822, and the exit was at 1.31694. The total is 112 pips.
Attached Image (click to enlarge)
Click to Enlarge Name: eurchf.gif Size: 21 KB
  • #19
  • Dec 5, 2010 3:32am Dec 5, 2010 3:32am
Quoting lgtj
I would like to show you how I trade using the big "D" (divergence) on the higher time frames. Divergence trading is nothing new and has been around for years. I use it on the 4hr charts and higher, but you can use it on whatever time frame you like. There are two types of divergences, regular divergence and hidden divergence. I mostly look for regular divergence.

Regular Divergence is a sign of a possible trend reversal. When price is making lower lows, but the oscillator is making higher lows, this is [b]regular bullish divergence....
Hi lgtj...

Nice thread with very sound information. Too bad most people don't have the patience to trade on 4hr or daily charts. I must admit the call of the action on smaller time frame charts is hard to resist even for me. I'm going to give this a go for the next few months and see if I can develop my longer term trading skills.
  • #20
  • Dec 5, 2010 7:01am Dec 5, 2010 7:01am
Quoting ozziedave
Hi lgtj...

Nice thread with very sound information. Too bad most people don't have the patience to trade on 4hr or daily charts. I must admit the call of the action on smaller time frame charts is hard to resist even for me. I'm going to give this a go for the next few months and see if I can develop my longer term trading skills.
Hello ozziedave and thank you for your comments. You're right about having patience when trading the higher time frames. It's tempting for me also to trade the lower time frames because there are divergence set ups occurring there all of the time. But, I decided to stick with the 4hr and higher time frames because there is less noise, and the trend is with the higher time frames. Your input is welcome on my thread because I've learned a lot from you when we were posting on king's thread.
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