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Old 12-19-2011, 02:14 PM   #1

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Divergence Strategy- Discussion

Hi,

This thread will serve the purpose of discussion for live signals posted in Divergence Trading Strategy- Advanced.

I have mentioned all of this before... but I understand the main thread is messed up so here is the recap.

Internal Relative Strength
is defined as the price of a stock compared to it's prices n days back. For example if the stock is trading above it's range over last 10 days, it is relatively stronger than a stock which is trading in the middle of it's past 10 days range. It is measured by RSI, Stochastics, Aroon, ADX etc. This strategy uses RSI(10).

Negative Divergence: Is defined as the decrease in internal relative strength of a stock, while the price apparently increases.
Positive Divergence: Is defines as the increase in internal relative strength of a stock, while the price apparently decreases.
Support/Resistance: Any of the popular anchor points like recent pivot high(low), open price of day, high(low) of day, confluence of pivots levels on shorter time frame.

Example Charts:
http://www.traderslaboratory.com/for...tml#post133963
http://www.traderslaboratory.com/for...tml#post133966
http://www.traderslaboratory.com/for...-advanced.html

Important: Please make sure you are familiar with Concepts in Technical Analysis before reading further.

Strategy rules: All trades are taken on daily, for convenient discussion. I will automate posting of intraday trade signals via twitter API when the strategy itself is 100% automated.
Signal: A signal is generated when a positive/negative divergence is seen.
Prevalent Trend: Is determined by the same oscillator used for generating divergence signals. See here on determining trend using RSI.
Entry: Once a signal is generated, look for an entry for next 10 bars or so, until the price movement confirms the direction of signal. Trades are executed when the stock touches/breaks the nearest supp/ress.
Exit/Stop: Depends upon stock's volatility and how stronger the prevalent trend is. For example stops will be tighter in range-bound market vs. when the trend greatly favors your position
Strength: Enter fast and Exit fast, once in a position, hold as long your minimum risk/reward is maintained AND the prevalent trend favors your position. For example, I exited many positions within couple of days because stop was hit; holding SLB since 7/12 (currently ninth day) because its trend favors my position.
Costliest Mistake: Do not buy after big gap up, and do not short after big gap down. Similarly in intraday do not buy (short) after a spike up (down).

See attached charts for current running trade on FLS.

Many members were confused by what the strategy actually does, because the original thread was flooded by opinions from other 'professional' with apparently 'superior' trading strategies. The fact that these members never posted live trades/signals is left upon the readers to decide about their credibility.
Attached Thumbnails
Divergence Strategy- Discussion-daily.png   Divergence Strategy- Discussion-hourly.png   Divergence Strategy- Discussion-daily-condensed.png  
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Last edited by Do Or Die; 12-19-2011 at 02:23 PM.
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Old 12-20-2011, 11:06 AM   #2

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Re: Divergence Strategy- Discussion

Do or Die
You are a very hard worker
Well done
regards
bobc
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Old 12-20-2011, 12:12 PM   #3

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Re: Divergence Strategy- Discussion

A question for you DoD. Given that your divergence signals are effectively putting you on alert as to the timing of potential trades, what are you using for the price of entry, or isn't that an especially important factor? If you use a variety of different methods, surely you must see more common entry types given certain divergence types right? Also, it seems you are using multiple instruments presumably in an attempt to smooth out results, but are you attempting do diversify in any way by using non-correlated products? Finally, how realistic or not do you think this strategy is for most of our forum members(honest question)? I have to say that I am not a believer in RSI although there are certain divergence types which I do look at, but only in support of my main techniques.
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Old 12-20-2011, 12:27 PM   #4

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Re: Divergence Strategy- Discussion

Quote:
Originally Posted by Do Or Die »
Many members were confused by what the strategy actually does, because the original thread was flooded by opinions from other 'professional' with apparently 'superior' trading strategies. The fact that these members never posted live trades/signals is left upon the readers to decide about their credibility.
I would just point out that this isn't an entirely fair statement DoD. Just because a member either doesn't want to post live entries, or has a method which dictates that they can't really do so otherwise it would distract them, doesn't mean they aren't being honest about what they're doing.
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Old 12-20-2011, 12:45 PM   #5

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Re: Divergence Strategy- Discussion

I use the convergence, and divergence of the moving averages, and the bollinger bands to time my entries and exits all the time. It has proven to be a fairly reliable signal for me.
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Old 12-20-2011, 02:03 PM   #6

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Re: Divergence Strategy- Discussion

Divergence is a powerful strategy when used in correct context. I've used divergence successfully for years to exit position trades. I prefer 'intrinsic' strength (IS) over 'relative' strength. stock could move up strongly showing relative strength and still have no intrinsic strength. i.e. market could be sole source of this 'relative' strength. Intrinsic Strength is EFS file comparing price to S&P 500. when IS trends up, stock shows internal strength coming from factors outside of market influence. this is a key nuance.

reference attached chart:
initially look for IS to make lower high( LH). when this occurs, look for momentum (CCI) to make lower high while price makes higher high.(basic divergence). NOTE: it's important that momentum come from above overbought level. (+200)

locate point where momentum makes lowest low (LL) between momentum highs. this LL should be below +100 level. when momentum drops below this LL point, exit is warranted. usually occurs when momentum drops below the zero line (ZL), identified with RED dot.

Interestingly, HACO (Heikin-Ashi Candlestick Oscillator) signals exit on same day. HACO is the green / yellow overlay on price. for info on HACO, click here.
Heikin-Ashi Candlestick Oscillator | ThinkScripter

good trading,
Peter.
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Old 12-20-2011, 09:04 PM   #7

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Re: Divergence Strategy- Discussion

Quote:
Originally Posted by TheNegotiator »
A question for you DoD. Given that your divergence signals are effectively putting you on alert as to the timing of potential trades, what are you using for the price of entry, or isn't that an especially important factor?
Using S/R levels for execution, as mentioned
Quote:
If you use a variety of different methods, surely you must see more common entry types given certain divergence types right?
I do not believe in divergence types hidden/reverse etc. If you see my definition, a divergence is a divergence, as simple as that.
Quote:
Also, it seems you are using multiple instruments presumably in an attempt to smooth out results, but are you attempting do diversify in any way by using non-correlated products?
LOL, no diversification sought at this stage. If I post just one signal at a time I run the risk of being called too selective and hiding something.
Quote:
Finally, how realistic or not do you think this strategy is for most of our forum members(honest question)? I have to say that I am not a believer in RSI although there are certain divergence types which I do look at, but only in support of my main techniques.
This is a discussion forum; everyone is free to pick what they like, ditch what they feel useless, and if possible try improve the original strat in a definite manner. (Improvement does not means ditching the original premise)
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Old 12-20-2011, 09:09 PM   #8

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Re: Divergence Strategy- Discussion

Quote:
Originally Posted by peterjerome »
.. I prefer 'intrinsic' strength (IS) over 'relative' strength.
Thanks for the comment... it seems that you are calling IS what I call 'internal relative strength'... how exactly do you measure it?
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