MACD divergence on 28 November

[SoundFX]

Also a 10 period momentum indicator is another terrific divergence indicator especially when coupled with the MACD. It typically starts rounding the corner before MACD divergence is fully developed.


-S

[birdjaguar]

Originally Posted by SoundFX

I've got another suggestion. Call me crazy. After you spend a few hundred hours staring at charts being able to spot divergence immediately ya do this...


Use 30 minute chart. Either use histogram divergence as well explained in the above post or full MACD divergence then enter 1 short lot (if divergence points to a short position. Then set an OCO order to either take profit 100 pips below the entry point OR sell another contract if price moves against you 100 pips. If THAT order is hit then set to close out both contracts at the original entry price thus netting you 100 pips. However if price moves against you 100 pips the second short then sell 2 more place TP order at the second position. This is a Martingale spin-off but not quite as dangerous as a typical Martingale strategy as divergence is a huge indication of trend reversal even if the market keeps skidding for a bit in the opposite direction. All in all you're constantly looking for 100 pip gains. In a properly funded diversified account this works quite well.

-S

As a real time example I'm looking at the GBP. I've sold at 1.7520 with a TP at 7420. But if price climbs to 7620 I'll sell one more set exits for both lots at 7520 netting 100 pips. We'll see how this one plays out.

This is a good strategy but you are probably on the wrong side of this p as USD rate increases are likely to wane. This strategy would probably have worked best with a long trade as the GBP/USD bottom was forming. I also tried the 1.7520 resistance level but reversed two days later to a long position. The next resistance level is 1.7800. Keep in mind that this p tends to overshoot. Notice the histogram has not changed yet on the daily chart so your short seems premature. Remember as discussed in this thread the first signal doesn't come until the histogram changes direction. The next trade comes when the signal line crosses. Or you can use some number of pips. 100 should not be a fixed number. It should exp contract with the volatility of the p.

[SoundFX]

You've got a good point BirdJaguar. Fighting the trend like that does take a bit of stamina. However if one's wallet can withst the drawdown a 100 pip reversal is always imminent. Markets don't continue one way forever. Just takes some discipline a thick stomach lining. yeah that GBP keeps on rising.

Incidentally another strategy for trend-following instead of fading I'm working on...

Utilizes a median-price 21 period RSI. Seems counter-intuitive based on the stard way the RSI is traded but I find it effective. Basically you look for a swing high which causes the RSI to peak above 70 then retreats at least to 50. Then you place a stop 10 pips above the peak which caused the OVERBOUGHT RSI reading. Reverse that indication for shorts. This looks to be a great way to catch a trend ride it for several hundred pips. Still looking into it. Seems to be an effective way of noting signifcant breaches of major short-term S/R levels.

-SFX

[birdjaguar]

Good call SoundFX. You may be able to get long GBP/USD around 1.7620 in a retracement to catch 1.7820 then try a stop reverse to sell the daily resistance. This is not advice. I am just guessing at about where your indicators will put you in out. Happy trading!

[Gdoss]

I would tend to agree with Oneclickaway. Many times MACD Div occurs on tall waves if you wait for a zero line cross over it may be too late. Typically when it has reached the zero line the price move has either exhausted itself or almost over. I like to see the divergence then just a cross over of signal line primarily on hrly. Divergence is powerful enough just use price in relation to S/R trend lines to confirm.

[birdjaguar]

You are quite correct with one caveat: there will be a f number of false signals if you enter on histogram divergence. This mainly amounts to trying to catch tops bottoms. It is more difficult than it seems. Double divergence though less frequent will probably give you more than 50% reliability the ability to use smaller stops. Just a thought not a disagreement.

[eagleeye]

Originally Posted by SoundFX

As a real time example I'm looking at the GBP. I've sold at 1.7520 with a TP at 7420. But if price climbs to 7620 I'll sell one more set exits for both lots at 7520 netting 100 pips. We'll see how this one plays out.

I hope you got out of this one! OUCH

But seriously on the 30 min chart for cable on December 11 2005 why were you selling?

I use a MACD Histogram on December 11 had a positive cross negative to positive on the 1900 EST bar.

I also have divergence between the low of 1.7491 @1700 the MACD low put in @1530

If anything a long order around 1.7550 was warrented not short.

Time is currently 2100 GMT - Look at Cable the Divergence on your 30 min charts!

The 1900 high is higher than the 1500 high but the histogram is less - Personally I'm long cable at 1.7700

Why? My system says so - but I digress.

[SoundFX]

EagleEye. All astute observations no doubt. The iniitial divergence I was alking about was on December 8th it was very slight...basically momentum histogram divergence. At this signal I always start building a position even if it is early. The idea being that the market is giving some signs of weakness. Sometimes I'm right on the first lot. Other times it takes some major skidding. Good example is the USd/JPY which I shorted a week or so ago just waited on. This morning took what could be minor term long in USd/CHF short EUR/USD based on divergence alone. Guess its all relevant to our individual time frames. Your GBP long might be profitable for you. while my short does the same if I get out son enough.

We shall see.

-S