The biggest lie about divergence in trading | Forex Factory

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The biggest lie about divergence in trading

  • #1
  • First Post: May 18, 2016 8:59pm May 18, 2016 8:59pm
The biggest lie in trading is, "Divergence gives the best signals"
we have all read it in countless of books about trading.

I have made several EAs trading both classical and hidden divergence,
the results have been very poor, none of them gives a good signal.
opinions?

maybe it worked 30 years ago when some authors wrote those books?
but I really doubt that, did anyone here have a good result with divergence?
would be interested to hear your thoughts about it.
Bulls are stupid Animals!especially when Im short!
  • #2
  • May 19, 2016 4:09am May 19, 2016 4:09am
Quoting roughtrader
The biggest lie in trading is, "Divergence gives the best signals" we have all read it in countless of books about trading. I have made several EAs trading both classical and hidden divergence, the results have been very poor, none of them gives a good signal. opinions? maybe it worked 30 years ago when some authors wrote those books? but I really doubt that, did anyone here have a good result with divergence? would be interested to hear your thoughts about it.
Hi roughtrader, I prefer this title

The biggest true about Divergences in trading = BS

All the best for you $$
  • #3
  • May 19, 2016 6:36am May 19, 2016 6:36am
Quoting roughtrader
The biggest lie in trading is, "Divergence gives the best signals" we have all read it in countless of books about trading. I have made several EAs trading both classical and hidden divergence, the results have been very poor, none of them gives a good signal. opinions? maybe it worked 30 years ago when some authors wrote those books? but I really doubt that, did anyone here have a good result with divergence? would be interested to hear your thoughts about it.
I have fantastic results trading divergence. The thing is though, divergence is just one indicator and like all indicators, it cannot be used in isolation. When it has other factors to support it, such as pre-determined S&R levels, moving average configuration, trend line etc, then it can be incredibly powerful. It can be predicted as well, as the moves that create the divergence can be a giveaway. Take this morning's Dax as an example. The price fell from the Frankfurt open, really dropping away from the London open, stalling just before the 9800 big round number, and rising tentatively. I use multiple time frames, But I was watching the 3 m which I use between the 1 and 10m frames. From 9800, the price pulled the MACD ribbon up off it's low. We then, predictably, fell again heavily off of counter resistance, the price putting in a final very powerful full negative candle which took the price lower, setting up divergence with MACD. This was a typical divergence move.

Added to this, what were the other indicators to back this up?

 

  1. Big support level in the Daily 100sma where the price found support with pinpoint accuracy
  2. Trend line gave the entry once diversion was confirmed
  3. Price failed to put in a lower low, stalling just below the 61.8%
  4. Diversion and the trade confirmed ( on this time frame ) once the price broke and closed above the central moving average, in this case, the one I use being the 20ema.

So there you are, diversion is extremely powerful when it is confirmed. It can usually be predicted and very often follows a powerful final move with the trend which sets up the diversion.

  • #4
  • May 19, 2016 6:42am May 19, 2016 6:42am
Quoting cat
{quote} I have fantastic results trading divergence ....... So there you are, diversion is extremely powerful when it is confirmed. It can usually be predicted and very often follows a powerful final move with the trend which sets up the diversion.
Do you think divergences is what makes the price move?
  • #5
  • May 19, 2016 6:50am May 19, 2016 6:50am
Quoting cat
{quote} ...divergence is just one indicator and like all indicators, it cannot be used in isolation...
I second that. I have found that divergence and hidden divergence are powerful signs about change of direction of market movements, but they need to be used along with other tools. A lessened momentum (using any type of oscillator) with regular divergence or increased momentum with hidden (or reverse) divergence are very useful indications when you are familiar with how they work.
  • #6
  • May 19, 2016 6:51am May 19, 2016 6:51am
Quoting GnWFx
{quote} I second that. I have found that divergence and hidden divergence are powerful signs about change of direction of market movements, but they need to be used along with other tools. A lessened momentum (using any type of oscillator) with regular divergence or increased momentum with hidden (or reverse) divergence are very useful indications when you are familiar with how they work.
LOL

PS I´m out.
  • #7
  • May 19, 2016 6:59am May 19, 2016 6:59am
Quoting roughtrader
The biggest lie in trading is, "Divergence gives the best signals" we have all read it in countless of books about trading. I have made several EAs trading both classical and hidden divergence, the results have been very poor, none of them gives a good signal. opinions? maybe it worked 30 years ago when some authors wrote those books? but I really doubt that, did anyone here have a good result with divergence? would be interested to hear your thoughts about it.
Interesting topic. One thing you just need to be careful of with divergence is whether it is simply a feature of the method of indicator calculation or whether the divergence signal emanates from another data source such as volume etc. that confirms a divergence between data streams. For example if the indicator is driven from the same data source as price for example, then the indicator signal falling off (diverging) when price is trending upwards is nothing more than the results of the calculation created by the indicator as opposed to an interrogation method to determine a divergence from different data sources. It makes sense when you think about it.

An RSI/Stochastic/MACD divergence on price data is a result of the calculation that simply means that price continues to move into overbought/oversold territory, so somewhere and somewhen the trend will retrace....which isn't really giving additional info to what otherwise would be achieved without the indicator *provided you keep your brain engaged*. It certainly however does make you focus on whether a price movement may be overbought/oversold due to the visual signal...so at least it forces you to consider this aspect of price action if you are consciously looking for divergence signals which otherwise may be overlooked by that mush we call the brain.
  • #8
  • May 19, 2016 7:12am May 19, 2016 7:12am
Here's the chart showing today's divergence I was taking about above, It is supported by several indicators, including one I didn't mention, which is a Bollinger squeeze around the entry point.
Attached Image (click to enlarge)
Click to Enlarge Name: Div.png Size: 56 KB
  • #9
  • May 19, 2016 7:14am May 19, 2016 7:14am
Quoting cat
Here's the chart showing today's divergence I was taking about above, It is supported by several indicators, including one I didn't mention, which is a Bollinger squeeze around the entry point. {image}
Nice example Cat. Looks like you nailed that trade
  • #10
  • May 19, 2016 7:22am May 19, 2016 7:22am
Quoting cat
Here's the chart showing today's divergence I was taking about above, It is supported by several indicators, including one I didn't mention, which is a Bollinger squeeze around the entry point. {image}


Quoting Copernicus
{quote} Nice example Cat. Looks like you nailed that trade
  • #11
  • May 19, 2016 7:26am May 19, 2016 7:26am
Quoting Copernicus
{quote} Nice example Cat. Looks like you nailed that trade
I have to disappoint you, as this is one trade example I didn't nail as unfortunately I had to go out this morning unexpectedly so missed the whole thing, but, it is a very good example of this type of trade and I would like to think that I would have nailed it as it had everything I look for.
  • #12
  • May 19, 2016 7:30am May 19, 2016 7:30am
Quoting seahorse
{quote} Do you think divergences is what makes the price move?
I never said that, but it is one of the indicators which, when combined with others, can prompt traders to act a certain way, and that is what makes the price move.
  • #13
  • May 19, 2016 7:32am May 19, 2016 7:32am
Quoting cat
{quote} I have to disappoint you, as this is one trade example I didn't nail as unfortunately I had to go out this morning unexpectedly so missed the whole thing, but, it is a very good example of this type of trade and I would like to think that I would have nailed it as it had everything I look for.
Damn.....don't you hate that. Perhaps we should be looking into cloning as a way to ensure one of you is always at the screen to take the trade.
  • #14
  • May 19, 2016 7:35am May 19, 2016 7:35am
Quoting cat
{quote} I never said that, but it is one of the indicators which, when combined with others, can prompt traders to act a certain way, and that is what makes the price move.
Nope.
  • #15
  • May 19, 2016 7:40am May 19, 2016 7:40am
Quoting seahorse
{quote} Nope.
What do you mean, nope?
  • #16
  • May 19, 2016 7:42am May 19, 2016 7:42am
Quoting cat
{quote} What do you mean, nope?
No.
  • #17
  • May 19, 2016 7:42am May 19, 2016 7:42am
Quoting Copernicus
{quote} Damn.....don't you hate that. Perhaps we should be looking into cloning as a way to ensure one of you is always at the screen to take the trade.
I did it with the wife once when I had to go away for a couple of days, but when I came back we were almost bankrupt
  • #18
  • May 19, 2016 7:43am May 19, 2016 7:43am
Quoting cat
{quote} I did it with the wife once when I had to go away for a couple of days, but when I came back we were almost bankrupt
ROFL. She just needs the credit card to do that to me.
  • #19
  • May 19, 2016 7:44am May 19, 2016 7:44am
Quoting seahorse
{quote} No.
oh FFS, what d'you mean 'No' then, because if you've got your own theory of what moves price, I'm sure you can elaborate slightly on ' No'.
  • #20
  • May 19, 2016 7:45am May 19, 2016 7:45am
Quoting Copernicus
{quote} ROFL. She just needs the credit card to do that to me.
ditto.
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