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Old 12-08-2011, 03:38 AM   #1

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Divergence Trading Strategy- Advanced

Hi,

This follows from the RS- Internal thread.

I have been able to code the classic divergences to a satisfactory level without a future looking formula. The peculiarity of this method is that it detects a divergence before the second consecutive peak/trough actually occurs on chart (anticipatory discovery). This eliminates the huge lag in decision making caused by waiting to confirm the second peak/trough. See this chart:


Most codes that I've seen around either use a future looking formula like zig-zag and/or wait for the confirmation of second peak/trough. By the time the second consecutive pivot is confirmed, market has already moved away by few bars. In V-shaped pivots, the move is already over if one goes by the traditional way of comparing two peaks on prices vs. an oscillator.

More charts:




BTW, the 'advanced' word in title is more of a cliche; the strategy is actually basic (conceptual); i.e. mark opportunity when a stock seems to move lower while it's internal relative strength actually increases.

I will be calling some signals live in this thread, so it will also serve the purpose of a journal, to improve the strategy.
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Divergence Trading Strategy- Advanced-aapl.png   Divergence Trading Strategy- Advanced-ibm-zoom.png   Divergence Trading Strategy- Advanced-ibm.png   Divergence Trading Strategy- Advanced-aet.png  
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Old 12-08-2011, 03:56 AM   #2

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Re: Divergence Trading Strategy- Advanced

Earlier detection of RSI divergence also helps in keeping tighter stop. So it helps in both reducing the risk and maximizing potential reward. I use the most recent pivot high, bar high or support as stop loss.

Shorts triggered in VRSN, DGX, AET, CMS, EOG, ETN, NSC, SLB, FDX.
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Old 12-08-2011, 02:48 PM   #3

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Re: Divergence Trading Strategy- Advanced

RSI is still completely based on price. So the divergence is between raw price and a means of measuring price. Divergences that only look at price do not consider the forces that drive price.

More reliabe divergeces are the ones between price and the buying and selling volumes that propel price.

The chart below shows a session low in the ES where there was an obvious lower low in price but at the same time there was a higher low in the indicator of buying a selling strength and that the higher low in the indicator actually came before the lower low in price.


More Price/Balance of Trade Divergences:















Cheers,

UrmaBlume
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Old 12-09-2011, 03:18 AM   #4

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Re: Divergence Trading Strategy- Advanced

The point is that price is not the best predictor of price and that trade imbalance is what drives price. Thus divergence between raw price movements and the forces that drive price stand to deliver a more reliable signal than divergence between price and just another measure of price.

Measures of divergence between price and RSI, MACD and Stochastic are not really so much divergences as a matter of process and settings on the same input.

However divergences between price and indicators based on order flow/balance of trade with price as no part of their calculation measure a divergence between price and what drives price. A much more reliable indicator with a greater depth of information.

The herd uses RSI, MACD and Stochastics and for using those original, state of the art tools and techniques the herd is rewarded as blind, unthinking, uncreative followers should be rewarded.

Information = Equity

If your information is the same as everybody else's then expect to have the same result as most everybody else and we all know what that is.

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Old 12-09-2011, 03:34 AM   #5

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Re: Divergence Trading Strategy- Advanced

Hello,

I think you have written a lot about the 'herd mentality' and your 'proprietary' indicator. So I asked you to log a live trade record (in another thread).

thanks.
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Old 12-09-2011, 09:49 AM   #6

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Re: Divergence Trading Strategy- Advanced

Quote:
Originally Posted by Do Or Die »
Hello,I think you have written a lot about the 'herd mentality' and your 'proprietary' indicator. So I asked you to log a live trade record (in another thread).thanks.
I thought the topic here was "Divergene Trading Strategy - Advanced."

My point is that divergence trading using RSI, MACD or Stochastic is hardly advanced and has been known and used by the herd for decades with herd type results.

As to a live trade record - its your thread so why not post one.

My post is about Divergence Trading and discusses divergence between price and the force that propels price instead of the difference between 2 different measures of price which is really no true divergence at all.

I have mentioned no product, service or site here. My posts have been on topic and so should your replies.

The topic here is Divergence Trading and I say that a Divergence/Difference between price and the forces that drive price is truer measure of divergence than a difference between price and just another measure of price.

UrmaBlume
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Old 12-09-2011, 10:01 AM   #7

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Re: Divergence Trading Strategy- Advanced

Quote:
Originally Posted by UrmaBlume »
I thought the topic here was "Divergene Trading Strategy - Advanced."

My point is that divergence trading using RSI, MACD or Stochastic is hardly advanced and has been known and used by the herd for decades with herd type results.
Good to know that you read the title. I wish so much that you also read the first few lines of post before hurrying to promote your indicator.
Quote:
As to a live trade record - its your thread so why not post one.
ROFL.

Amazing.

All the signals I posted are in profit. I will post live signals, which are a good proxy for my analytical methods. I do not need to post actual trades because I'm not and do not ever intend to solicit money for indicators or money management.

I will leave you now to re-think before attempting another off-topic post.
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Old 12-09-2011, 10:54 AM   #8

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Re: Divergence Trading Strategy- Advanced

Trade Records and whether or not I am a vendor are hardly to topic. Yes, indeed, I do run a software company and I have paid TL for a sponsored thread where I discuss my products. Here, in this discussion of Divergences, you have made much mention of that - I have made none.

My premise is that Divvergences that note RSI, MACD & Stochastic are old news and have been used ineffectively for decades by public/retail traders who don't seem to be able to see beyond the sameO, sameO.

The second part of that premise, still on the topic of divergence, is that measures of divergence between price and indicators that consider the buying and selling volumes/forces that propel price offers a much more reliable indication of both divergence and pending change.

In numbers, a very, very small percentage of total traders make money long term. Also that same very small percentage of traders make a very, very big percentage of the total money that is made.

My money bet is that of that very small percentage of those who make all the real money in this game are using Price/RSI divergences. What a huge laugh you would get if you took that approach to any profitable, tech-based trading or hedge fund operation today.

How say you?

UrmaBlume
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