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Seeing Divergence without an Indicator?

  • #1
  • First Post: Feb 7, 2012 8:30am Feb 7, 2012 8:30am
Hi,

Is it possible to know divergance through pure price action without using any indicators?

Thanks.
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  • #2
  • Feb 7, 2012 8:52am Feb 7, 2012 8:52am
I don't know. That'd be kind of neat:
If someone found a line from early PA that reflected why a MACD (or other) - type divergence line existed,
at the same time the current PA showed the trend as having an opposing angle.

Sometimes I call a trend that is very straight or comes in straight to a point,
and then a trend following it turning ninety degrees or so/more against it,
a divergence, because it literally looks like a divergence from the trend.
Only, that's a mere convenience, and more something other than what you seem to be writing about.
  • #3
  • Feb 7, 2012 9:03am Feb 7, 2012 9:03am
I trade divergence using OsMa and Trendlines

I guess one way could be using lower high, lower low and higher high, higher low coupled with S/R

but with indicator, why would you not use it?
  • #4
  • Feb 7, 2012 9:06am Feb 7, 2012 9:06am
there is no way we can say there is a divergence without comparing price action with some indicators. divergence means that price is playing R&B but the indicators are dancing Reggae. so when a trader(who trade naked) claims that he had spotted a divergence, the question people will ask is "divergence from what?"...haha, just my OWN view.

if you have got a contrary opinion, i would love to "learn" how to spot a divergence without indi....
  • #5
  • Edited 12:26pm Feb 7, 2012 11:11am | Edited 12:26pm
I'm not sure but I think when an oscillator signals divergence, it is because the new higher high (or alternatively, lower low) took more bars to form than the previous higher high ( meaning less momentum, deceleration), causing the price bars get closer to the moving average to which the oscillator compares the price. Note the following: the more bars needed to form a higher high, the closer the moving average gets to the price, and the closer the oscillator's value gets to 0 (or any custom middle point for that matter).

So basically when the horizontal distance between the new higher high and the previous one is bigger then the distance between the previous one and the one before that, it should be a divergence. Correct me anyone if I am wrong!

I hope it makes sense. It should be true for those oscillators that use moving averages.
  • #6
  • Feb 7, 2012 4:18pm Feb 7, 2012 4:18pm
Quoting Pipanator
Hi,

Is it possible to know divergance through pure price action without using any indicators?

Thanks.
YES, just think about it and it will come to you. Depending on the math of the indicator, when price doesn't travel as far as fast even though it's making new ground it will show divergence.... some more some less, depends on how lagging the indi is created.

edit, might add, it's tough to spot hidden divergence with the naked eye
  • #7
  • Feb 8, 2012 2:28am Feb 8, 2012 2:28am
There is a thread somewhere on here ---about a year old dealing with exactly this.
We are all One. Be present. Be the Observer
  • #8
  • Feb 8, 2012 3:19am Feb 8, 2012 3:19am
Yes you can see divergence without an indicator. Hidden divergence is even easier to spot. If you know what divergence is telling you then you will be able to spot it without the indi. For example, a slow laboured flag type retrace after a sharp move will create hidden divengence. Swings that get smaller in magnitude with spikey bars that close off the high (for up trend) will create classic divergence. But it is easier just to use the indi if you trade divergences because it will not always be clear.
  • #9
  • Feb 8, 2012 3:45am Feb 8, 2012 3:45am
While on the subject of divergence I would be interested to hear what people use as a trigger once the divergence has been spotted.
We are all One. Be present. Be the Observer
  • #10
  • Feb 8, 2012 6:18am Feb 8, 2012 6:18am
Quoting Pipanator
Hi,

Is it possible to know divergance through pure price action without using any indicators?

Thanks.
yeah saw two other guys touched on it.. however I'll show it to you...
Attached Image (click to enlarge)
Click to Enlarge Name: blah.png Size: 19 KB
  • #11
  • Feb 8, 2012 6:19am Feb 8, 2012 6:19am
Quoting newyear498
yeah saw two other guys touched on it.. however I'll show it to you...
notice how trend slows down over time and how the upward moves become lesser than there previous
  • #12
  • Feb 8, 2012 6:39am Feb 8, 2012 6:39am
so new year thats it? the swings get less and less and we should either see a pullback to the upside or reversal?
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  • #13
  • Feb 8, 2012 7:18am Feb 8, 2012 7:18am
Divergence in the form of an indicator or not, both derive its being from PRICE values. Price is all you're looking at. An indicator that measures the gap between a 12-period EMA & 26-period EMA is still only PRICE.

Using historical price action to predict future change in market direction is a waste of time. Been down that road.

btw, NewYear is correct in what price action will look like when a MACD starts showing 'divergence'.
  • #14
  • Feb 8, 2012 7:23am Feb 8, 2012 7:23am
Quoting Pipanator
so new year thats it? the swings get less and less and we should either see a pullback to the upside or reversal?
pull up indicator and find some diverging and you will see the same effect as my above picture in the price patterns (ranging markets don't count)

and I'm not saying you will see anything.. for me to say it will break up or down would be using that pattern as a leading indicator

and I in no way am supporting or refuting this pattern of divergence has any statistical edge


oh and theres other types of "divergence" so I think I only showed one type and not sure what name of that type is
  • #15
  • Feb 8, 2012 8:37pm Feb 8, 2012 8:37pm
Here is one way of seeing divergence using price action only:

Take a look at the chart below.

A: a large dark (open>close) WRB.

A': The very next interval is a white (open<close) candle .

B: a large dark (open>close) WRB. However note that this WRB is smaller than the previous WRB A. Also note that it is lower than A.

B': the very next interval is a white (open<close) candle . Note that this white candle is larger than the previous white candle and close higher in the range B. In fact, it closes outside the range (as it happens this interval is an Outside Key Reversal) of B.

Putting it all together we see a large dark WRB interval as price is falling. The reaction to the large dark candle is pretty muted. That is to say, the next interval is small and does not "retrace" much of the large interval's range. As price continues to fall, we see another dark WRB interval. This time, however, the WRB is smaller than the previous WRB. So price continues to fall but the dark WRBs are getting smaller in size. Then we see the reaction to the second WRB interval. Unlike the first time, the reaction here is evident. The candle is large and "retraces" the entire range of the previous WRB. We also note that this "reaction" candle is larger than the previous "reaction" candle. Which is the opposite of the WRBs-they are getting smaller. That's divergence.
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Without VSA, you're playing checkers while the Smart Money plays chess.
  • #16
  • Feb 9, 2012 12:22am Feb 9, 2012 12:22am
Quoting HiddenGap
Here is one way of seeing divergence using price action only:

Take a look at the chart below.

A: a large dark (open>close) WRB.

A': The very next interval is a white (open<close) candle .

B: a large dark (open>close) WRB. However note that this WRB is smaller than the previous WRB A. Also note that it is lower than A.

B': the very next interval is a white (open<close) candle . Note that this white candle is larger than the previous white candle and close higher in the range B....
Thats very interesting. I surmise that your tp's follow the same idea----if the pullbacks are half hearted it is safe to stay in until pullbacks gain more power?
Also do you have hard and fast rules as to what constitutes a WRB---or are you just eyeballing them ?
We are all One. Be present. Be the Observer
  • #17
  • Feb 9, 2012 2:35pm Feb 9, 2012 2:35pm
Quoting Iamfx
Thats very interesting. I surmise that your tp's follow the same idea----if the pullbacks are half hearted it is safe to stay in until pullbacks gain more power?
Also do you have hard and fast rules as to what constitutes a WRB---or are you just eyeballing them ?
Actually, the profit targets are done simply the apperance of a WRB on the close.

A Wide Range Body is defined as a body where the absolue value of the open-close is greater than the bodies of the previous three (3) intervals. Wide Range Bar would be a range (H-L) greater than the range of the previous three (3) intervals. So basically we are talking about the largest body or range of the last four (4) intervals. Four (4) is not magical. Any number can be used-5, 8,16, 22. However, less than four (4) is not good because it makes determining volatility decreases harder.....
Without VSA, you're playing checkers while the Smart Money plays chess.
  • #18
  • Feb 15, 2012 3:52am Feb 15, 2012 3:52am
Quoting HiddenGap
Here is one way of seeing divergence using price action only:

Take a look at the chart below.

A: a large dark (open>close) WRB.

A': The very next interval is a white (open<close) candle .

B: a large dark (open>close) WRB. However note that this WRB is smaller than the previous WRB A. Also note that it is lower than A.

B': the very next interval is a white (open<close) candle . Note that this white candle is larger than the previous white candle and close higher in the range B....
G'day HiddenGap
That is a very nice chart. Would you actually trade a setup like that or are you generally more concerned with the magnetism of the hidden gap that appeared in the WRB 7 bars before your first "A" on the chart?
I read that WRB's are traded in conjunction with a signal of your choice---is divergence your favourite signal?
We are all One. Be present. Be the Observer
  • #19
  • Mar 29, 2012 9:49am Mar 29, 2012 9:49am
Quoting HiddenGap
Here is one way of seeing divergence using price action only:

Take a look at the chart below.

A: a large dark (open>close) WRB.

A': The very next interval is a white (open<close) candle .

B: a large dark (open>close) WRB. However note that this WRB is smaller than the previous WRB A. Also note that it is lower than A.

B': the very next interval is a white (open<close) candle . Note that this white candle is larger than the previous white candle and close higher in the range B. In...
Extremely interesting, how do you enter ?
Where can I read up more in detail on how you trade ?

Thanks,
Michael
The quality of your life is brought about by the quality of your thinking.
  • #20
  • Mar 29, 2012 10:47am Mar 29, 2012 10:47am
Interesting!
I can't but I want to know.
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