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Divergence trading

  • #1
  • First Post: Aug 1, 2006 10:34am Aug 1, 2006 10:34am
I was wandering if anybody here is using Divergence as the basis for making trading decisions. I found on the forum someone saying that this type of trading is very risky due to the fact that is counter trend. Is there anybody that makes high probability trades based on divergence? How reliable do you find it? Any thoughts, comments or suggestions about it would be apreciated.
Stubbornly persistent
  • #2
  • Aug 1, 2006 12:11pm Aug 1, 2006 12:11pm
Quoting sergiu
I was wandering if anybody here is using Divergence as the basis for making trading decisions. I found on the forum someone saying that this type of trading is very risky due to the fact that is counter trend. Is there anybody that makes high probability trades based on divergence? How reliable do you find it? Any thoughts, comments or suggestions about it would be apreciated.
Sergiu

I use divergences a lot. I have found that there are two oscillators which are of very accurate in helping to detect turning points. I use metatrader software and the OsMa and Force index are really powerful when they both diverge from price. I prefer position trading rather than day trading and therefore trade the four hour timescale with divergences. I also use BBands and trendline breaks on the RSI to confirm my divergence signals.
Never Ever Give Up!
  • #3
  • Aug 1, 2006 12:30pm Aug 1, 2006 12:30pm
Quoting Cobra
Sergiu

I use divergences a lot. I have found that there are two oscillators which are of very accurate in helping to detect turning points. I use metatrader software and the OsMa and Force index are really powerful when they both diverge from price. I prefer position trading rather than day trading and therefore trade the four hour timescale with divergences. I also use BBands and trendline breaks on the RSI to confirm my divergence signals.

Hi cobra!

I am using the four hour chart when looking for divergence trades as well. First I can not be in front of the computer all day so a longer time frame is better for that reason. And second the divergence seems to be more reliable there. I am using mostly MACD for divergence though. I do not use metatrader even though I have it on my computer. I use intellicharts. I do not have the two indicators you mentioned. I started my metatrader and checked the OsMA out. It seems to have the same settings as MACD so I assume it must have some similarities. I could not find the force index. Could you elaborate what it is and how it is being calculated. I assume that you trade a rather wide range of different currencies since there are not many signals. Did you find some pairs being more reliable than others in regard to divergence?

Regards,

Sergiu
Stubbornly persistent
  • #4
  • Aug 1, 2006 12:54pm Aug 1, 2006 12:54pm
I remember sweet pips from divergence trading on Aussie

It was 1 year ago
kiss the trend
  • #5
  • Aug 1, 2006 1:51pm Aug 1, 2006 1:51pm
[quote=sergiu]Hi cobra!

I am using the four hour chart when looking for divergence trades as well. First I can not be in front of the computer all day so a longer time frame is better for that reason. And second the divergence seems to be more reliable there. I am using mostly MACD for divergence though. I do not use metatrader even though I have it on my computer. I use intellicharts. I do not have the two indicators you mentioned. I started my metatrader and checked the OsMA out. It seems to have the same settings as MACD so I assume it must have some similarities. I could not find the force index. Could you elaborate what it is and how it is being calculated. I assume that you trade a rather wide range of different currencies since there are not many signals. Did you find some pairs being more reliable than others in regard to divergence?

I use OsMa and force index on its standard settings. MACD also diverge from price, but i find OsMa diverge more from price at turning points than MACD. Force index is an indicator developed by dr Alexander Elder. If you "google" force index you will get all the detail you want on it. I only trade the EUR/USD. However the other three majors do give nice signals with these two oscillators. The signals are also accurate on smaller timeframes if you choose to trade them. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /><o></o>

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Cobra<o></o>
Never Ever Give Up!
  • #6
  • Aug 1, 2006 2:08pm Aug 1, 2006 2:08pm
If you are only trade one pair i imagine you do not get to many trades using this particular method. Do you use other strategies?
Thanks for all the info!
Sergiu
Stubbornly persistent
  • #7
  • Aug 1, 2006 2:14pm Aug 1, 2006 2:14pm
Quoting sergiu
If you are only trade one pair i imagine you do not get to many trades using this particular method. Do you use other strategies?
Thanks for all the info!
Sergiu
Sergiu

I use another system as well. I am almost always long and short on the same currency in the market. This is my main system and i would rather not discuss it here. Hope you will understand.
Here is a link to an article about force index:http://option-wizard.com/features/force.shtml.
This explains it in full detail. Hope it helps!

Cobra
Never Ever Give Up!
  • #8
  • Aug 1, 2006 2:19pm Aug 1, 2006 2:19pm
Sergiu

Stick to this forum if it is info you are looking for. It is free and worth thousands of dollars. Just browse through it. You will find info on almost all subjects relating to forex trading.

Cobra
Never Ever Give Up!
  • #9
  • Aug 1, 2006 4:51pm Aug 1, 2006 4:51pm
Quoting sergiu
I was wandering if anybody here is using Divergence as the basis for making trading decisions. I found on the forum someone saying that this type of trading is very risky due to the fact that is counter trend. Is there anybody that makes high probability trades based on divergence? How reliable do you find it? Any thoughts, comments or suggestions about it would be apreciated.

I use divergence trading pratically in every trade. The standard macd histogram (osMa in MT) is great in finding divergence, but it's greater when used in more than one timeframe. I also (me too) use Elder force index, not to find divergences but to identify when a pullback is almost done (low risk entry point in trending markets).

Also divergence trading is not necessary counter trend, in fact i use divergences to enter in the direction of the trend (look for "hidden divergences" or "reverse divergences").
  • #10
  • Aug 1, 2006 5:05pm Aug 1, 2006 5:05pm
I am using intellicharts and they do not have OsMA or the force index. I am working on creating OsMA myself. The problem would be force index. You need volume for the formula and intellicharts do not have volume. Any sugestions on that?
Stubbornly persistent
  • #11
  • Last Post: Aug 1, 2006 5:16pm Aug 1, 2006 5:16pm
I never used intellicharts, but the fact that there is no volume leaves very few hopes toward force index.

You should look at the documentation, searching for all the standard array of data that are present, and see if there is a proxy for the volume, such as number of contracts or other.

Regarding osMa, this is just a curious name for "MACD Histogram", which is quite always included in the "MACD" indicator in charting packages.
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