# Trading Divergence



## eunza (3 August 2010)

Hi Guys,

I've started running analysis on the RSCD method on a few various 
ASX ticker threads however thought I would open a thread here for
questions and basically as a platform to reference the various 
charts i've analysed.  Mods - If any problems with this please let 
me know.  I'm new to this particular forum however have posted on a few other forums BB's in the past however was looking for a new 'home' 

As a intro the RSCD method is a way of trading in volatile markets 
as a way of choosing vital entry points before or during breakouts 
or short term periods of SP gain.  It also shows possible exit 
points and weakness in the SP that you would not pickup during 
normal analysis.  You could describe this method as 'Swing trading'
however the main emphasis is on the RCD chart - A kind of MACD chart 
designed for these swing plays.  The plays are PURELY T/A and any 
fundamental research is minimal.  I do however run a quick reference 
check on the ASX code to find any possible red flags.

To start off I have posted a couple of charts with full analysis on the method and update as the charts play out.  These have been posted within the actual ASX Code threads with charts attached.

OGC - Comparison of recent swings and short term view
DJS - Overall daily chart analysis and RCD direction (closed)
DUE - analysis on RCD patterns and potential future direction.

As mentioned in the DJS thread I do not want to be needing to follow 
the F/A on each stock and DJS gives us a good example.  Because of 
the potential court action I sold straight out and will find another 
stock with less F/A emphasis.  

Happy to field any questions or discuss the method.  

Thanks for having me ASFers & mods!

- 
eunza


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## professor_frink (3 August 2010)

*Re: Reversal Swing Convergence Divergence*

nice! Had seen your earlier posts before and thought they looked interesting.

Looking forward to seeing a bit more


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## eunza (4 August 2010)

*Re: Reversal Swing Convergence Divergence*

Thanks Professor_Frink 

I've just posted a daily comparison chart of *SGN* in its own thread analyzing the current action compared to similarities on recent price increases.


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## tech/a (4 August 2010)

*Re: Reversal Swing Convergence Divergence*



eunza said:


> Thanks Professor_Frink
> 
> I've just posted a daily comparison chart of *SGN* in its own thread analyzing the current action compared to similarities on recent price increases.






> RCD (middle chart) - check the comparisons of the blue and green trend channels - as mentioned earlier a downward pink trend above the Centre line will be neutral whereas under the centre line will be bullish - You can see the SP start to run up as the pink draws down at the start of the blue section and again when it renters mid may.
> just before the green section starts you can see the several attempts to close below the line - when this does finally happen the SP begins to rise.
> The RCD has also been held back at the short green line showing a double top and return to trending downwards below the centre line.
> The final indicator is the drop below the lower green trend line - This can show that the RCD is picking up speed (bullish)
> ...




Oh dear.

Hindsite analysis at its peak!
Do you have any trading figures on your "idea"
Any expectancy---string of losses---string of wins?

Can you explain point of entry with the method for any new trades.
Are 2 divergence peaks enough.
How do you define when the second peak is in its place---hard to do as it is dynamic.


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## professor_frink (4 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> Oh dear.
> 
> Hindsite analysis at its peak!
> Do you have any trading figures on your "idea"
> ...




careful tech you'll scare off all the new posters to the forum with confrontational comments like that

We've all been guilty of posting late on occasions when it comes to trades, though I'm failing to see how this qualifies, there isn't even an entry point highlighted in his post, seemed to be a case of suggesting higher prices and nothing more.

Having said that, I do agree with your sentiment about identifying peaks and troughs for divergence plays, it's a lot tougher in real time than it looks.

Would be interested in hearing your thoughts on this eunza


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## overit (4 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> How do you define when the second peak is in its place---hard to do as it is dynamic.




I had a divergence system once using stochastic momentum. Worked alright for awhile. How I overcome this problem was by using a different color for up and down trend. As soon as the change in trend was locked in that was my signal. Wasnt a classic divergence play as such but the color thing was quite useful for picking lower highs etc. Not perfect but made life a lot easier.


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## eunza (4 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> Oh dear.
> 
> Hindsite analysis at its peak!
> Do you have any trading figures on your "idea"
> ...




Hi Tech/A 

The point of entry method that I would use for these kind of trades would be to first of all to analyze the Longer Term Charts (such as weekly / Daily) which give a cleaner snapshot of the past performance on the chart - when I've decided that an entry could be 'positive' i'll then drill down to smaller points in time (such as 30min / 1 hr)  and pick a swing when I see a good opportunity.  I haven't said that I can predict what the future will hold - just the probabilities that I see (this I admit is very subjective however you can't just use a rigid system) and study the chart on what has happened and what MIGHT happen.  

As to the expectancy and results from my back testing (run over about 2 dozen ASX Codes over 5 years - and also others more recently on last 2 years and 6 months data to keep up with the market volatility )  I've found that losses seem to be minimal when they occur (on avg about 2-3%) as i'll sell out when the indicators line up -  and with profits they run out to about 8-15%  (seems to be around 1/4 of trades however will ebb and flow).  overall I've had quite positive results.

Re: the divergence peaks - any chump can draw a line between 2 points - However you can still use whatever data available - obviously the more better the results.

Re: dynamic data - I'll only use these as a guide.  Of course these can change until the 'close' of the candle however you can still approximate until then. 

Not sure why the hostility on this board but all I'm doing is analyzing the charts as I see them and trying to pick more % of winners than of losers.  Thats how i see it - a % game.  

As Professor_frink mentioned - I haven't listed entry points as its more of a general direction


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## It's Snake Pliskin (4 August 2010)

*Re: Reversal Swing Convergence Divergence*



eunza said:


> Hi Tech/A
> 
> The point of entry method that I would use for these kind of trades would be to first of all to analyze the Longer Term Charts (such as weekly / Daily) which give a cleaner snapshot of the past performance on the chart - when I've decided that an entry could be 'positive' i'll then drill down to smaller points in time (such as 30min / 1 hr)  and pick a swing when I see a good opportunity.  I haven't said that I can predict what the future will hold - just the probabilities that I see (this I admit is very subjective however you can't just use a rigid system) and study the chart on what has happened and what MIGHT happen.
> 
> ...




Eunza,
Just regarding the % game you mentioned are you referring to % in amount won to amount lost, or number of winners to number of losers?

There is no hostility, but historically on this forum some will deride lagging indicators. My take is they haven't yet understood the real value of them. Is there any chance you can make your charts easier to read with less noise?


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## BBand (4 August 2010)

*Re: Reversal Swing Convergence Divergence*

Thought I'd just add my  worth
One of my preferred trade type is divergence and using lagging indicators to find them.

The following relates to long trades (and if it means anything, I trade EOD)

We tend to relate divergence trading with entering a trade at its turning point (say downtrend to uptrend)
This does not always result in a "useful trade" - but whats new about that!!

All we are doing is observing weakness in a trend which usually results in a move in the opposite direction

*Identifying divergence is not that hard!!!!
*
Here are a couple of setups that I use:

The stochastic is a popular indicator so we will base this post on using it and price, I use 5,3,3 for the stoch
We will look for bullish divergence in a downtrend

*Reason for trade:*
The probability of divergence leading to a trend reversal is well above average (DYOR)

*Logic:*
Trend weakness is a leading indicator of a possible trend reversal

*Tools:*
Stoch (5,3,3) and RSI(9)
The stoch is a popular lagging indicator, but is good at identifying turning points. So we use this to find pivot lows
RSI(9)
Because its trace has well defined pivots hi/lo
An aside: the RSI trace is virtually a mirror image of its price line chart, both are normally based on closing prices,but has the advantage of showing divergence and having more pronounced pivots
It can also be used for line studies

*Scan:*
Stoch buy signal, at around its 20 zone

*Methodology*
1 Aggressive  2 Conservative
See below

*Trade management*
Resulting trendline or as per your trading plan

Methodology
1 Aggressive
We use the stoch scan to find buy signals in the 20 zone
Add the results to a watch list
We then monitor the subsequent indicator trace, looking for price to continue lower, but the down swing of your indicator to be above that of the initial buy signal
When we have this, we have divergence - but not confirmed divergence
So we trail the high of each subsequent lower bar with a buy order until we are pulled into the trade.
This is probably not acceptable for most of us (too much work) - instead we could just check any chart which we may have occasion to have on our screen and look for this setup

2 Conservative
Scan your universe for stoch buy signal in the 20 zone
and RSI in the 20 zone.

Eyeball the resultant stocks etc
If you can connect the last RSI pivot low with its previous pivot low, and the resulting trendline is sloping upward - then you have either found divergence or an upsloping trendline - either of which are tradeable!!!

there you go, the above is the basics of how I trade divergence
I'm sure you can improve on it

If you use indicators - make use of their attributes. Some are leading (I only know of one, but that does not mean that there are no others) and most are lagging
If you trade a setup, know why you are using the setup

Hope the above rabble is deciferrable????????? (must learn to spell) and is of use to somebody

Peter 

PS I have found that the most successful divergence trades are when we get three price/ indicator consecutive pivot low divergencies (sometimes the 1st two do not result in a reasonable move)


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## professor_frink (4 August 2010)

*Re: Reversal Swing Convergence Divergence*

I've removed a couple of posts.

Anyone that can't be bothered being polite can stay off the thread.

That is all


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## tech/a (4 August 2010)

*Re: Reversal Swing Convergence Divergence*

Why is it when I ask how the idea has been tested and for some sort of credible record of result I'm seen as hostile.

Your kidding!

What just nod knowingly.

Ill challenge whoever you want to put up against me that 20 picks of divergence wont give you an edge in a profitable trading method.

If you can show a profit after 20 trades (accumulated) I'll send Joe $500.
If you cant then you send him (Joe) the $500.



> The probability of divergence leading to a trend reversal is well above average (DYOR)




Perhaps you Pete!

How do I know.Ive done my own DYOR.

Ive actually tested it over 7 bourses and 1000s of portfolios.

I'm sick of seeing meaningless hypothetical nonsense posted on ASF as credible trading methodology without a single method application in sight.
Let alone a sound basis for measuring its success.


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## nunthewiser (4 August 2010)

*Re: Reversal Swing Convergence Divergence*

Nice to have you back tech/a


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## tech/a (4 August 2010)

*Re: Reversal Swing Convergence Divergence*



nunthewiser said:


> Nice to have you back tech/a




Ive been somewhere?


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## nunthewiser (4 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> Ive been somewhere?




Yes.


your Absense has been noticeable


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## wayneL (4 August 2010)

*Re: Reversal Swing Convergence Divergence*



nunthewiser said:


> Yes.
> 
> 
> your Absense has been noticeable




Less arguments? 

:


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## tech/a (4 August 2010)

*Re: Reversal Swing Convergence Divergence*

Here are a couple of examples I found on a chart---first one I pulled up.
Would you trade the current diversion?
How about the one before it?


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## tech/a (4 August 2010)

*Re: Reversal Swing Convergence Divergence*



wayneL said:


> Less arguments?
> 
> :




Wayne.

Counter views arent arguments.
They are questioning the viability of the idea.
I would hope it would present a balance in the idea being presented without it being seen as me attempting to pull apart an idea.

If the presenter then adds evidence to his ideas then does that not bring about healthy discussion on a topic.
Ill certainly present my side.


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## tech/a (4 August 2010)

*Re: Reversal Swing Convergence Divergence*

Ok 
Ill be nice.

Ill try and make the same points more subtly and without being confronting.

Mind you I am asking everyone to confront everything they see and read on forums as the larger majority of it is without substance or substantiation.

My intention is not to deride someones input but to seek how it is applied in a practical sence and if indeed it is a viable idea.


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## nunthewiser (4 August 2010)

*Re: Reversal Swing Convergence Divergence*



wayneL said:


> Less arguments?
> 
> :



yeah maybe BUT

both sides of the argument instead of a whole lot of backslappin and no questioning of methods....


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## wayneL (4 August 2010)

*Re: Reversal Swing Convergence Divergence*

:::


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## BBand (4 August 2010)

*Re: Reversal Swing Convergence Divergence*

Hi Tech
I'm certainly not looking for any confrontational stuff - too old for that

BUT

My definition of a divergence seems to be a bit different from yours
Just keep it simple, and reference regular divergence, ie bearish or bullish. Hidden divergence is a bit different.(trend continuation)

Regular divergence
When in an uptrend, we compare the price highs with the indicator highs. if there is a deviation, then we expect the price to move in the direction of the indicator divergence
In a downtrend we compare the price lows with the indicator lows, any deviation - we expect the price to move in the direction of the indicator

Soooooooooooo
In your example above the 1st divergence did work - was not a great move, but it did move down, I would have had a profitable trade there
You seem to be comparing high pivots with low pivots??
Maybe thats why your results were not that great

Your second example, I would not even look at, I would treat it as a pattern

As we know it is easy to find a setup that works and one that doesn't.

The good part with divergence is that it gives tight stops and you soon know if your "analysis " is correct - no waiting around to see if something is going to work or not.

Anyway, that's how I see it.
My interpretation works for me

Keep smiling
Peter
Wish I could see that chart again, I do not like challenging you - you are usually correct - anyway I'll hit the submit


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## tech/a (4 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> Here are a couple of examples I found on a chart---first one I pulled up.
> Would you trade the current diversion?
> How about the one before it?




So back to the discussion.
Would you think this is a good divergence?
Or how about these 2.
So of the 3 pick the winner/s
Ill bet we get less than 50% right.(As in number of people who get it correct.).
And thats just as an entry.
Wont give the answers until at least 10 people choose.

Forget the $500 just do THIS as an exercise.

*Pete* I see your point but really if your going to trade a move like that from a divergence---you have to be kidding!
How would you set the exit!


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## BBand (4 August 2010)

*Re: Reversal Swing Convergence Divergence*

Hi Tech,
They are both moving in the expected direction just nowwwwwww

Whether you exit with a profit will depend on your trade management (I use indicator S/R levels - which I do not intend disclosing)

Its something that I discovered after a LOT of chart time and I do not intend giving it away just to prove a point.

But the bottom line is diversion works for me and that's all that matters

Have a nice day
Peter


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## BBand (4 August 2010)

*Re: Reversal Swing Convergence Divergence*

Tech, 
There's no fool like an old fool (me)
but just could not resist ------------

Looking at your first chart.
The highest point of the price is giving a bearish divergence - what happened?

and the lowest point of the price is also a bullish divergence - what was the outcome?

On your second chart
The two price pivot highs could technically be classified by what I think is termed a class 2 diversion - what resulted?
Personally I would not have taken that trade

Hind sight analysis - yes, but then again I suspect so is yours?

Same again
Have a nice day
Peter  

PS I only take trades which are obvious, I do not look for a reason to "find" a trade


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## tech/a (4 August 2010)

*Re: Reversal Swing Convergence Divergence*

So Pete for clarity.
(1) The divergence is not clear in your view so no direction.
(2) You feel this would have failed
(3) ?? cant see an opinion.

Just so I can prove a point after we get 10 or so verdicts.


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## It's Snake Pliskin (4 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> So back to the discussion.
> Would you think this is a good divergence?
> Or how about these 2.
> So of the 3 pick the winner/s
> ...



Tech,

Just going by your charts on post 22:

1. The price continues up. 
2. The bearishness is confirmed.

I'd love to see some volume bars though.
Thanks


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## BBand (4 August 2010)

*Re: Reversal Swing Convergence Divergence*

Hi Tech,
I give up!!
We are not on the same wavelength, so we are wasting each others time 

Its getting late - posted this on another thread by mistake, time for bed

Have a good day to-morrow
Peter


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## tech/a (5 August 2010)

*Re: Reversal Swing Convergence Divergence*



> We are not on the same wavelength




If by my stance of attempting to prove that trading divergence is no more  profitable than random---then yes. At least I'm putting up examples from which a conclusion can be drawn---albeit in a small sample set.



> so we are wasting each others time




This maybe your opinion but not mine. If i can get traders to look into their beliefs and question whether they are proven or just home grown ideas---then Ive not wasted anyone's time.---or money.
Divergence


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## tech/a (5 August 2010)

*Re: Reversal Swing Convergence Divergence*

Hell

Ive scared everyone off!

There is an important message I'm going to be able to put forward with relation to this topic and will be more pertinent if a few others become involved.
Maybe not as obviuos as some may think.

So how do you think the divergence setup on the 3 charts will play out.

Thanks Snake and Pete for your replies so far.


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## wayneL (5 August 2010)

*Re: Reversal Swing Convergence Divergence*

FWIW

1/ Because of the way stochastic is calculated, I don't think stoch divergences are worth a cracker.

2/ I don't really put much stock into them myself, but if I were looking for them I think I'd pay more attention to bullish divers... certainly on daily charts.

3/ I would use a MA based oscillator such as MACD if I did... or RSI.

....just to keep the thread alive really.


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## eunza (5 August 2010)

*Re: Reversal Swing Convergence Divergence*

Hi Tech/A - No not scared off - just only access forums every now and then.

To be honest I would not trade most of the charts you posted at that point in time - The way that I trade only leans to certain setups (most of the time these are during a period of low price movement after high volatility)

I'll usually look through dozens of charts before looks like it could be beggining or showing signs of a 'breakout' so possible trades are few and far between.  This is a weakness in my strategy that I can only trade a small % of current price movements.  However overall it is profitable for me.  

Just wondering - Are these charts you posted from current SP charts (as in were they up to the minute when you took the screenshot?) or have you selected specific patterns to prove a point?  

I would  be interested in putting in hypothetical trades entrys and exits in a real time scenario if you were keen to prove methods.  IE.  pick a bunch of stocks and list at that point in time if you buy or sell and tally up the results. 




tech/a said:


> Hell
> 
> Ive scared everyone off!
> 
> ...


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## professor_frink (5 August 2010)

*Re: Reversal Swing Convergence Divergence*

Don't really have much of an opinion on the first 2, but the last one looks worthy of further investigation, mainly as a SR play. Though that last bar is slightly concerning IMO for any long trade.

As for the divergence involved, I wouldn't have classified that last chart as anything I'd be interested in, if it had of been an ABC type correction with a higher low forming on the oscillator as price formed the LL, then it may have looked a little more interesting. Sort of like the 2nd chart has, but I'd want to see it occur over a longer period of time, if that makes sense.


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## pistol72 (5 August 2010)

*Re: Reversal Swing Convergence Divergence*

i like to use divergance as an indicator .i see where you are coming from pete,i prefer to use the RSI but have traded sto divergance aswell.bieng selective is key and not use as stand alone. 
tech how about examples of some triple divergance with stocks that have been in a long term down/up trend.i find that something generally happens after a D.hopefully a chart
P


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## It's Snake Pliskin (5 August 2010)

*Re: Reversal Swing Convergence Divergence*



wayneL said:


> FWIW
> 
> 1/ Because of the way stochastic is calculated, I don't think stoch divergences are worth a cracker.
> 
> ...




Have to agree. 

The chart examples above are not useful.
And I think we should get back to letting Eunza to continue with his RSCD.


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## BBand (5 August 2010)

*Re: Reversal Swing Convergence Divergence*

Hi Tech,
I must admit that I take exception when someone asks for proof of any statement which I may make, or offer to place a bet - to me that's shows lack of respect (I'm old school and to me thats not acceptable)

I have nothing to gain from posting here and anyone who believes ANY methodology given on the internet would be very foolish not to prove it for themselves before committing any of their hard earned cash to the market

Anyway here's my proof so that there is no unfinished business:

How do I know my strategies work?

I test all my strategies MANUALLY!! I have A4 folders full of charts - each having approx 10 trades - including losers.
Its time consuming work, but the outcome is that I know my strategies extremely well, and in the process of compiling my chart books, I had the opportunity of observing recurring patterns, both positive and negative

I know that most of us would not commit to this or have the time, but if possible - I would highly recommend doing it

The stocks were picked at random from my trading universe and for each stock I marked up the weekly and daily charts. The weekly showed the week before the setup appeared on the daily and the daily was marked up to show the trade and any points in particular that I found interesting, and the % win or loss for each trade
On the back of each chart I summarize that the results of the trades and their type

I only trade long (from the daily) and proved that I can expect to make money in any kind of market, just that when the weekly is in an uptrend I can expect to make larger profits, and the reverse when the weekly is down (surprise surprise)

I am very wary of taking long trades when the weekly is down, after getting good results in chart after chart - I hit one where I did not get even one winner!

Now I don't even bother taking any trades when its weekly chart is down

Every weekend I check to ensure my trades are still working. I scan for each type and depending on the numbers received from the results I can tell when a trade type is starting to tail off and another picking up. Once you are organised, it does not take much to keep your finger on the pulse of the market

Maybe its my trade management that helps make me profitable. - its very strict with the aim of not letting a winner become a loser. I,m only in a trade as long as it is moving in "my" direction i.e trending

I use tight initial stops - the low of the signal bar
My entry - price must take out the hi of the signal bar
Trade management - I use 3 stops whichever one is hit first is the exit
I use indicator S/R levels as my trailing stop
I have a time stop- if I'm not in profit after two bars I exit (sometimes price pokes above the high of the signal bar then drops back into the body of the signal bar) or I have an entry signal but price does not take out its high within two bars.
The last stop is an indicator stop

The above may sound complicated but in reality its quite simple, all stops are documented in my trading plan so once in a trade - its just a matter of following the rules

I am often taken out of a trade early - but thats not a problem, I can always reenter

In a bad trade, I aim to get out before my stop is hit (just like Tech)

By the way my charts show the type of trades as they occur - I don't have one for divergence, one for........... etc

My trades last from 1 day (out the following morning) to weeks

Oh and there is another thing regarding exits - if on the day following my exit signal, price does not drop below my exit bar low - the trade stays open

Thats all I can think of, hope it makes sense - too long to check, I'll just submit it

Have a nice day
Peter 

PS I agree with Wayne, the Stochastic is not much use for defining divergence. I have 4 indicators on my screen all the time, never changes, but only one is in use consistently, each of the others is used for a particular feature

Thats it easy to trade and keep up to date (once you do the initial work)


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## sinner (5 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> So how do you think the divergence setup on the 3 charts will play out.




I would like to contribute.

First of all, I think if you want to trade a divergence, then you need to ask yourself what is the indicator that I am using showing a divergence of? Are you trading a momentum divergence? What are you expecting, aside from the possibility that momentum will slow down in the current trend or reverse in the current trend? Because that is all a momentum divergence shows. 

CCI, AD/OBV, ROC, etc many indicators show divergence but not all divergence was created equal nor were they meant to be. All divergence trades rely entirely on the traders understanding of the indicator in questions' equation and what the visual representation we know as divergence means in that case. CCI will be useless to you unless you have done some work quantifying the average length of a cycle for example.

The Advanced GET trading manual is designed to reduce many complex EW concepts into just a few very simple ideas which work often enough over a large spread of trades. Momentum divergence (with some caveats to make sure you are trading the end of the right wave) is profitable enough that they included it in the manual.

I direct you to chapter 11 on this page - the section titled "Rules for type 2 trades":
http://www.esignallearning.com/members/getManual.aspx

There are about 12 pages worth of examples, roughly half of which are type 2 (i.e. mom-div) trades.


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## tech/a (5 August 2010)

*Re: Reversal Swing Convergence Divergence*

Firstly.

Pete you are an exception and one of the only discretionary traders I have heard of who keeps a trade log.
I don't know that that log has calculated Strings of wins or losses,expectancy---overall or each discretionary setup---if you have repeats. but if your a serious discretionary trader this info is in valuable.

If you own STATOR it will give it to you if you record trades on it.
In fact you can label many discretionary methods and basically forward test what your doing.---LIVE!

I advocate that a very large majority of people who trade technically "think they know how their analysis will play out.
When in actual fact it doesn't matter how it plays out if you have information like Pete "possibly has".
He may know that placing 100 trades he will return 60% winners at an average return of 4R. By trading X discretionary method.
He sets a buy and a stop and the rest just happens.

See----I hear above----(Posted) all sorts of reasons why the above examples are just not good enough,lack info,wrong type of divergence--only TWO bothered to have a go. Both would have taken their trades and been stopped out. I find it remarkable that not ONE person picked ONE divergence correct---most didnt even try!

Of the 3 trades shown 2 were winning trades and one a loser.
In other words 66% success rate.
If you took the trades and set a stop you would have started with a 66.6% win rate ---how much you made would depend on your stop and exit points.

*Much is espoused as known when in fact it really isn't.

Take High volume always preceedes a breakout.
Wanna take bets on how profitable that one is!*

You can filter tinker add to and alter the type of divergence in finitum but I will still give Joe $500 if anyone can post 20 trades here R/T using divergence as a foundation indicator and out perform the index over the same period.

In my view if you really have an edge in your trading you will have a method which rarely drops below the Mean of the index in fact it will be well above it with its own mean of performance. Pretty well always.Long and short term.

Now a divergence method you would think would work brilliantly in this non trending market.

To the charts
Click to expand.


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## It's Snake Pliskin (6 August 2010)

*Re: Reversal Swing Convergence Divergence*



sinner said:


> I would like to contribute.
> 
> First of all, I think if you want to trade a divergence, then you need to ask yourself what is the indicator that I am using showing a divergence of? Are you trading a momentum divergence? What are you expecting, aside from the possibility that momentum will slow down in the current trend or reverse in the current trend? Because that is all a momentum divergence shows.
> 
> ...



Sinner,

Thanks for the balanced and informative post. 

I agree there are many divergence / convergence _ways_ so to speak. 

Cheers..


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## wayneL (6 August 2010)

*Re: Reversal Swing Convergence Divergence*

I think it's a bit foolish to just look at any old divergence and use them as signals. Questions need to be asked first... apart from "does it work?".

1/ Why does it work

2/ What is it the indicator measuring

3/ The the divergence on the indicator reflect the theory

4/ Are there other extraneous influences which may invalidate the divergence

etc etc

The fact is that proper divergences are showing a slowing/weakening of the momentum of the prevailing trend.

For this we need a momentum indicator such as MACD and why the stochastic oscillator is useless (as it measures the price relevant to a range).

To understand divergences and what is happening, you need to be able to understand what the oscillator is measuring, how it is constructed (there is a thread on this) etc. In this way once an oscillator divergence "alerts" you to a possible slowing of the trend momo, you can view the price action to determine whether this fits the theory.

The key is in understanding the indicators and what they are actually showing you, if anything.


----------



## tech/a (6 August 2010)

*Re: Reversal Swing Convergence Divergence*

*Crazy arguement.*

The Charts show a positive result!!!
Here is MACD pretty close to the same.

Give me evidence that one form of divergence out performs another.

Then show me where ANY form of divergence as a foundation indicator consistently out performs the mean of the index.

Add whatever filtering system additional indicator you like---but show me---if its that obvious then it shouldnt be that hard.

*Infact give me a list of conditions* to be met and I'll find 20 charts that fit the criteria---post them up and see how they go.

So just bullet point the conditions and variables.
EG
. MACD
.Rising volume
Whatever you tell me.(meaning anyone who wishes to contribute)

I'll go to all the effort and if it out performs the index then I'll even send Joe $500---so I'll do all the work and take all the risk-----

Charts using MACD (Same ones)


----------



## professor_frink (6 August 2010)

*Re: Reversal Swing Convergence Divergence*

just curious what the first and 3rd stock codes are tech?


----------



## tech/a (6 August 2010)

*Re: Reversal Swing Convergence Divergence*



professor_frink said:


> just curious what the first and 3rd stock codes are tech?




1st
MAH
2nd
RIO
3rd
NAB

Dates are in the top left of the chart.(Last date shown on the chart).
This stochastic V MACD is an interesting arguement.
That converging and diverging M/As of a closing price have more meaning than the current close relative to the highest high and lowest low of x time periods.

It is argued 1 shows momentum graphically better than the other????

Wow---really
Click to expand.


----------



## Frank D (6 August 2010)

*Re: Reversal Swing Convergence Divergence*

You don’t need those indicators to know which one is likely to fail or 
which one is likely to succeed. You just need an understanding of the
 price action in relation to the Quarterly cycles.

NAB:- Already trading around the Quarterly highs in April (resistance)

RIO:-  Already trading around the monthly 50% level in February (support) with a bias to rise towards the Quarterly highs in April (resistance)

MAH:- already trading around the October highs (resistance) with a rotation pattern down into the monthly 50% levels.


Those indicators are a waste of time if you don't optimise the price 
action with the Primary and Secondary cycles:- support & resistance


----------



## brty (6 August 2010)

*Re: Reversal Swing Convergence Divergence*

There are some gems in this thread, and not necessarily in just the realm of divergence.

From TechA, 


> Mind you I am asking everyone to confront everything they see and read on forums as the larger majority of it is without substance or substantiation.




Absolutely agree 100%, yet many do not. Also the opposite is also true of many in that they think information on the net posted for free is useless, yet sometimes it is extremely valuable, but obviously always check.

BBand,



> I test all my strategies MANUALLY!!




So do I, you get to see where and why something does or does not work, whereas a computer printout of a strategy does not give you this advantage.

Now, on to the topic.
I tend to agree with Tech about the uselessness of divergence by itself. Personally I do not use it. However on the 3 charts presented by knowing when the divergence is not working, as in chart 3 can get you out of a poor situation. With the failure MAH, my take is that after the trade was not working as planned, one should exit the position. As this was going sideways, there would have been no loss by exiting after 8-10 days of sideways action. Letting the market prove you are correct rather than waiting for the market to prove you incorrect is how I would play it.

With my own style of trading, I could have bought MAH when it first went down to ~63c, before the divergence showed itself. The sideways movement that brought out the divergence on indicators would have had me wary, and I would have exited after a couple of more days for a flat trade.

brty


----------



## It's Snake Pliskin (6 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> *Crazy arguement.*
> 
> The Charts show a positive result!!!
> Here is MACD pretty close to the same.
> ...




So Tech, would say a divergence of the stochastic is the same as a divergence of OBV for example?

Also, why are you focussing on being right? And at what point are you considering a divergence signal a failure after what time frame? 

Could you please stop asking everyone to take a $500 challenge it is disrespectful.


----------



## tech/a (6 August 2010)

*Re: Reversal Swing Convergence Divergence*



It's Snake Pliskin said:


> So Tech, would say a divergence of the stochastic is the same as a divergence of OBV for example?




It doesnt matter what the divergence is from what oscillator,relative to price action. longterm result is the same---no edge.



> Also, why are you focussing on being right? And at what point are you considering a divergence signal a failure after what time frame?




(A) Ive not seen any concrete evidence to the contrary.Pete says he can do well from it ---fine---but if I or You or anyone out there were to place $1K to 100K on a divergence trade youd be wanting more than here say---hmm perhaps not!
(b) Failure is an equity curve which is underwater.As we havent discussed exits or exact point of entry its a rather mute point. 



> Could you please stop asking everyone to take a $500 challenge it is disrespectful.




Ok.
Thought I had.

Now Ive offered Joe $500 if Divergence can be shown to supply an edge to the trader.
From Challenge to Donation.Is that acceptable?

Mind you the response has been underwhelming.


----------



## It's Snake Pliskin (6 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> It doesnt matter what the divergence is from what oscillator,relative to price action. longterm result is the same---no edge.
> 
> (A) Ive not seen any concrete evidence to the contrary.Pete says he can do well from it ---fine---but if I or You or anyone out there were to place $1K to 100K on a divergence trade youd be wanting more than here say---hmm perhaps not!
> (b) Failure is an equity curve which is underwater.As we havent discussed exits or exact point of entry its a rather mute point.
> ...




Tech I think you are missing the point that the way a divergence is traded is not the same for all people. And each indicator is different. Considering a divergence is a warning what is the issue that sees you so stridently opposed to them? No-one has made any claims that they work all the time nor given reasons for that, nor talked about exits and exact entries etc. Without this info you don't have much to be critical about unless you would like to give specific examples from your own trading.

If you want to donate to Joe I am sure he would be happy with it.


----------



## wayneL (6 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> *Crazy arguement.*
> 
> The Charts show a positive result!!!
> Here is MACD pretty close to the same.
> ...




Tech,

You might have missed where I said I don't use divergence and I also doubt they give the trader any edge.

However, if we are discussing them, we might as well get the parameters right.

I  maintain that stochastic osc is the wrong indicator to use for the logic and reasons already stated, whether or not the signals generated are similar some of the time.

There is nothing crazy about that.


----------



## Columbo (6 August 2010)

*Re: Reversal Swing Convergence Divergence*



wayneL said:


> Tech,
> 
> You might have missed where I said I don't use divergence and I also doubt they give the trader any edge.
> 
> ...




If one searches the internet or book stores there is plenty of EXPERTS who 
promise the world with colourful lines and histograms.All you need is some cash and it's the path to riches.

Firstly if anyone had some magic method that was a cash cow why share it 
for others to spoil the party.T/A in my opinion is not worth a cent, it promises the world and delivers nothing.Maybe when it first hit the scene it may have been worth while but every man and his dog leans on it now so it's edge is gone.All the lines ect tell you is what has happened and are no guarentee of future direction.To have long term success in this game you need an approach that is different to the norm.It's no different to life, the sucessful are different the average are just that.


----------



## tech/a (6 August 2010)

*Re: Reversal Swing Convergence Divergence*



It's Snake Pliskin said:


> Tech I think you are missing the point that the way a divergence is traded is not the same for all people. And each indicator is different.




When it comes to oscillators who's components are either
Open,close,high,low,even range I don't know about that (---see below in answer to Wayne.).



> Considering a divergence is a warning what is the issue that sees you so stridently opposed to them?




If I was going sailing and wanted a strong wind forecast I would want better reliability than Divergence.



> No-one has made any claims that they work all the time nor given reasons for that, nor talked about exits and exact entries etc. Without this info you don't have much to be critical about unless you would like to give specific examples from your own trading.




How many do you want I made a point on 3 charts not one correct.
I keep harping on about application (Theory without application remains theory) and all we get is theory.I have run many many tests on divergence and cant find 1 that returns a profit in fact I cant find 1 that doesn't wipe out the starting capital over an extended period. Ive even offered to run an exercise over 230 charts with the parameters selected by the populace.
Not 1 reply

I'm truly Underwhelmed!



> If you want to donate to Joe I am sure he would be happy with it.




I'm sure he would be pleased.



wayneL said:


> Tech,
> 
> You might have missed where I said I don't use divergence and I also doubt they give the trader any edge.




OK



> However, if we are discussing them, we might as well get the parameters right.
> 
> I  maintain that stochastic osc is the wrong indicator to use for the logic and reasons already stated, whether or not the signals generated are similar some of the time.
> 
> There is nothing crazy about that.




Well I don't know about that.

%K = 100[(C - L14)/(H14 - L14)] 

C = the most recent closing price 
L14 = the low of the 14 previous trading sessions 
H14 = the highest price traded during the same 14-day period.

%D = 3-period moving average of %K 

So if the stochastic is rising then the closing price is either the highest price for 14 periods or moving toward it.

If an M/A is rising or crossing a slower M/A it to(The close) is moving higher.
How is one superior to the other?

More to the point why is one WRONG relative to momentum??


----------



## professor_frink (6 August 2010)

*Re: Reversal Swing Convergence Divergence*

Tech, I can't really help you in regards to trying to come up with a set of coded rules for trading divergence, as I've never really been someone that trades with it much. I do use the McClellan oscillator a little bit, only to the long side and only as 1 of a number of filters. Personally think it'd test out horribly in isolation. What I am interested in is the how and why of the prior tests you've run.

Maybe if people can see some tested results and have a little look "under the hood" of any test that shows divergence to be useless, then it may at least shed some light on how not to use it, which is still quite useful information to have


----------



## tech/a (6 August 2010)

*Re: Reversal Swing Convergence Divergence*



professor_frink said:


> Tech, I can't really help you in regards to trying to come up with a set of coded rules for trading divergence, as I've never really been someone that trades with it much. I do use the McClellan oscillator a little bit, only to the long side and only as 1 of a number of filters. Personally think it'd test out horribly in isolation. What I am interested in is the how and why of the prior tests you've run.
> 
> Maybe if people can see some tested results and have a little look "under the hood" of any test that shows divergence to be useless, then it may at least shed some light on how not to use it, which is still quite useful information to have




So you'd like the formula for testing divergence and any other variable I choose to use.
Perhaps youd like me to just simply run sims on anything people cough up rather than the 20 charts suggested.

OK 
Ill play
Give me the conditions and I'll do both!
But give me the conditions!!!
Unbelieveable.
I'm asking people to THINK-----do due diligence and you want me to do all the work.

Hey if you think (meaning anyone out there) you can consistently out perform the index trading divergence (any divergence) then all wealth and riches to you.

Why bother I'll just let people absorb un substantiated theory and BUTT out!

Now those conditions are???


----------



## professor_frink (6 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> So you'd like the formula for testing divergence and any other variable I choose to use.
> Perhaps youd like me to just simply run sims on anything people cough up rather than the 20 charts suggested.
> 
> OK
> ...




I wasn't asking for the entire formula. Sorry to have offended you. Personally I don't have any interest in spending hours pouring over charts to come up with some kind of idea on exactly what conditions I'd like to see tested. If I had that level of interest I'd have tested it out myself.

I had just assumed that when you said you had tested it over many different exchanges that you'd have results and a general overview of the idea available to show people.

I'll leave you to it.


----------



## ginar (6 August 2010)

*Re: Reversal Swing Convergence Divergence*




Frank D said:


> You don’t need those indicators to know which one is likely to fail or
> which one is likely to succeed. You just need an understanding of the
> price action in relation to the Quarterly cycles.
> 
> ...




No arguements from me frank . just like to add the optomisation of indicator inputs to get a useable flowing set of exit and entry points is only evident in hindsight . This is why i think indicators in the main are redundant , in reality there is only price and time on a chart , i think it pays to concentrate on that in isolation instead of looking at twisted variations of price and time . Im sure you can learn something from elephants foot prints but if im studying elephants i want to be looking at elephants


----------



## Columbo (6 August 2010)

*Re: Reversal Swing Convergence Divergence*



professor_frink said:


> I wasn't asking for the entire formula. Sorry to have offended you. Personally I don't have any interest in spending hours pouring over charts to come up with some kind of idea on exactly what conditions I'd like to see tested. If I had that level of interest I'd have tested it out myself.
> 
> I had just assumed that when you said you had tested it over many different exchanges that you'd have results and a general overview of the idea available to show people.
> 
> I'll leave you to it.




I'm not attempting to insult anyone as this is a forum with opinions expressed.

But the very nature of the questions and explainations that go back and forth
it is logical to assume that no one really has a solid method.Why if one had some special indicator(s) would there be a need to question and examine the 
other guys golden indicator.The question one needs to ask is do I move from indicator to indicator looking for the holy grail ? The search will never end.


----------



## It's Snake Pliskin (6 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> When it comes to oscillators who's components are either
> Open,close,high,low,even range I don't know about that (---see below in answer to Wayne.).
> 
> If I was going sailing and wanted a strong wind forecast I would want better reliability than Divergence.
> ...



I'll leave you to it tech.


----------



## professor_frink (7 August 2010)

*Re: Reversal Swing Convergence Divergence*

Thought I'd throw something together to see how well it could be tested. Following code for amibroker will test out long only divergence on the RSI.

Looks for a higher high and higher close after divergence forms, stop 1 point below the lowest point of the move and a profit target twice the initial stop. Code is pretty raw and misses quite a bit of the action, but it could be a good starting point for anyone looking to test out this type of thing, so I thought I'd post it up in it's rather unrefined current state.

Tested it out on the index so the stop level is 1 point below the recent low, it would need to be adjusted if testing on shares. Just change the number in the "stoptrigger" line to adjust 

Cheers

```
a = LLV(RSI(14),20);
b = LLV(L,20);
d = Ref(L ==b AND RSI(14) > a,-1) AND Ref(RSI(14) > a,-2);

Buy = d AND H > Ref(H,-1) AND C > Ref(C,-1);
BuyPrice = C;
Sell = 0;
x = ValueWhen(Buy,LLV(L,20));
y = ValueWhen(Buy,C);
stoptrigger = x - 1;
ApplyStop( stopTypeLoss,stopModePoint,(y - stoptrigger));
target = (y-stoptrigger)*2;
ApplyStop( stopTypeProfit,stopModePoint,target);


PlotShapes(shapeUpArrow * Buy, colorGreen, 0, L, - 10);
Plot(stoptrigger,"stop",colorYellow,styleLine);
Plot((y +target),"profit target",colorBlue,styleLine);
```


----------



## tech/a (7 August 2010)

*Re: Reversal Swing Convergence Divergence*



> Ill leave it to you tech




Means?

Prof

Your right it is raw and really doesnt find divergence.
The problem is you need to get around the Zig Zag indicator often needed to define peaks and troughs.Thats why Im guarded about the code.
I paid for it!

here is a metastock code for MACD and RSI which I didnt pay for and maybe handy for those with metastock and interested in investigating further.
To alter to a systems test is a little more work this at least gives you the divergence code.

I also note no further comment re Stochasic v MACD or any other indicator?


----------



## professor_frink (7 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> Means?
> 
> Prof
> 
> Your right it is raw and really doesnt find divergence.




actually I thought it did a half decent job for something that got banged together in 20minutes 

Every signal it spat out seemed ok. Maybe I just don't understand divergence properly, it's not really something I've looked at in great detail before.

Here are the last couple. Seems fine to me.

View attachment 38269


Thanks for that code though. Off to the races today so will most likely be under the weather tomorrow, and maybe monday, will try and come back to this later.


----------



## wayneL (7 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> I also note no further comment re Stochasic v MACD or any other indicator?




It would be an interesting conversation to take this further, if I were interested, but I'm just not interested enough in diversions to bother right now.

Maybe later if I'm sitting in my cave and bored enough.


----------



## sinner (7 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> Now those conditions are???




tech/a I kindly request you backtest the conditions as presented for mechanical "type 2" trades in Chapter 11 of the current Advanced GET Trading Manual, link posted earlier.



tech/a said:


> Your right it is raw and really doesnt find divergence.
> The problem is you need to get around the Zig Zag indicator often needed to define peaks and troughs.Thats why Im guarded about the code.
> I paid for it!




Why on earth ZigZag? Why not Tom DeMark supply/demand points (which are just "fractals" of various duration) if you want something precise, or ATR swings to account for vol?

The "twin peaks" divergence used in the Bill Williams system (a bit different again, uses inflection in AO to enter) is outlined down the very bottom here:
http://www.alpari.co.uk/en/alpari_academy/market_analysis/bill_chaos/ao.html
AO is pretty much identical to the AdvancedGET oscillator, but the "type 2" trade for GET does not mind if the oscillator crosses below 0 between the "peaks" whereas Bill Williams does. I notice frinks divergences above don't cross over the 50 line of RSI which is equivalent to 0 line of the AO or GET oscillator.

Has all your divergence backtesting been using ZigZag?


----------



## tech/a (7 August 2010)

*Re: Reversal Swing Convergence Divergence*



sinner said:


> tech/a I kindly request you backtest the conditions as presented for mechanical "type 2" trades in Chapter 11 of the current Advanced GET Trading Manual, link posted earlier.
> 
> 
> 
> ...




No but if yor using peaks and troughs of price or oscillator----Zig Zag cannot be used in a formula(Thats how metastock atleast identifies peaks and troughs in price or oscillator---with the Zig Zag formula) If you do you will have a false result in systems testing because the % swing is dynamic those identified in hindsite are now set in stone(Peaks and troughs)---those which are current(You find today) are dynamic and todays peak or trough may disappear in 2 or so days to show a very different peak or trough this is why it is SO difficult to trade in R/T *This will become aparent when live traded*---you have to code around it.


Type 2 trades from GET arent divergence trades.
They are possible end of wave 5 trades with stochastic as one of the filters.
Ive never coded nor tested the setup and would be interesting to do but it has no bearing on the divergence discussion.

Like all oscillators in your case Sinner (AO) they look fantastic when seen in hindisite particularly when shown on a chart with a well behaving trend its just an M/A.

Realtime they are a completely different animal.

Ill find 3 charts with divergence if anyone else would like to add theirs and lets see how they trade R/T.Use whatever filters you deem appropriate set your own stops if you think necessary and your own exit (Trade management).


----------



## glenn_r (7 August 2010)

*Re: Reversal Swing Convergence Divergence*

Nirvana's latest Volume Systems 2 has a swing divergence system that produces some back testing results.

http://www.nirvanasystems.com/oti/pdfs/volumesystems2.pdf


----------



## eunza (7 August 2010)

*Re: Reversal Swing Convergence Divergence*

Ok i've updated *DUE* and *SGN* -  Will update DUE on Monday.

happy to lay my cards on the table here - Tech/A i've done plenty of back testing - lets see from the results as they go as although i'm not stating entry/exit points i'm still showing bullish/bearish on my posts (all bullish so far however will post the bearish when they show up.)  I might start at least showing on the chart where i've made the 'call'

still happy to take the criticism but lets just see how it goes


----------



## tech/a (7 August 2010)

*Re: Reversal Swing Convergence Divergence*



eunza said:


> Ok ii've updated *DUE* and *SGN* -  Will update DUE on Monday.
> 
> happy to lay my cards on the table here - Tech/A i've done plenty of back testing - lets see from the results as they go as although i'm not stating entry/exit points i'm still showing bullish/bearish on my posts (all bullish so far however will post the bearish when they show up.)  I might start at least showing on the chart where i've made the 'call'
> 
> still happy to take the criticism but lets just see how it goes




Great stuff.

Can you whack up a chart on both please.
I think it important to have an entry point otherwise all that's being shown is a possible setup.
Unless of course your saying that your divergences are a precursor to another entry triggered by some other condition?

I also think its important to know when the signal no longer valid---in other words the divergence is no longer applicable as a setup---IE its failed.
On the flip side when you would take profit.
Any stop?

Not hard to post up and then follow.


----------



## sinner (7 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> No but if yor using peaks and troughs of price or oscillator----Zig Zag cannot be used in a formula(Thats how metastock atleast identifies peaks and troughs in price or oscillator---with the Zig Zag formula) If you do you will have a false result in systems testing because the % swing is dynamic those identified in hindsite are now set in stone(Peaks and troughs)---those which are current(You find today) are dynamic and todays peak or trough may disappear in 2 or so days to show a very different peak or trough this is why it is SO difficult to trade in R/T *This will become aparent when live traded*---you have to code around it.






I have no idea why you are even arguing this issue...not sure why anyone even remotely interested in the concept of a divergence would use ZigZag for anything related to it.



> Type 2 trades from GET arent divergence trades.
> They are possible end of wave 5 trades with stochastic as one of the filters.
> Ive never coded nor tested the setup and would be interesting to do but it has no bearing on the divergence discussion.




Errrr what? Stochastic? The "Elliott Wave Oscillator" is an oscillator which represents the distance between 5SMA and 34SMA, very very similar to the formula for AO. The trading manual specifically states in chapter 7 titled "Elliott Wave Oscillator" that you can use this oscillator to identify wave 5, *using divergence*. It is included with the software. Specifically, pages titled 7~159 and 7~160 show how to interpret the divergence with waves labelled. The following 4 pages describe how to use the oscillator to interpret waves. 

As for your statement saying type 2 trade has no bearing on divergence, please see the first rule of the type 2 trade:


> *"1. When the Wave 5 makes new highs, make sure the Elliott Oscillator shows divergence between the Wave 3 peak and the Wave 5 peak."*




and the appropriate figure in the manual which shows the divergence in question. Bill Williams makes an almost identical observation in one of his books!

No idea what you meant by stochastic?



> Like all oscillators in your case Sinner (AO) they look fantastic when seen in hindisite particularly when shown on a chart with a well behaving trend its just an M/A.




Err actually it's showing the difference between two MAs in the case of AO, which is not "my case", I posted it because you kept asking for a set of rules to trade divergences, *they are right there*. When to enter, when the signal is invalid, etc.

Did you actually read any of the links I posted so far?



> Realtime they are a completely different animal.




Have traded plenty of these divergences realtime, with no issues on my part.

The above two quoted statements are frankly pretty condescending.


----------



## It's Snake Pliskin (7 August 2010)

*Re: Reversal Swing Convergence Divergence*



professor_frink said:


> actually I thought it did a half decent job for something that got banged together in 20minutes
> 
> Every signal it spat out seemed ok. Maybe I just don't understand divergence properly, it's not really something I've looked at in great detail before.
> 
> ...



Hi Professor,

You have labeled the divergence on the price extremes. Are you using the close price or price extreme as the points of price for the divergence?


----------



## tech/a (8 August 2010)

*Re: Reversal Swing Convergence Divergence*

Sinner.

I certainly like the idea of the type 2 AGET setup being used.
The rules are very clear and I have GET so can find trades to monitor.
Enrty Exits and Stops are clear.

I presume you have GET as well so can check also how its going.

For those that dont here are the rules as Sinner pointed out and some charts showing a trade.(From Esignal)

I'm sure this exercise will clearly show the difficulties in trading Divergence and Elliott at the same time.
I cannot test this setup as I dont have the code for much of the Elliott component---but we can forward test (Albeit limited---as in sample size.)

Will look for prospects both long and short.(Unless there is a problem with this?)

I particularly like the 94% claim will keep an eye on that one.


----------



## eunza (8 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> Great stuff.
> 
> Can you whack up a chart on both please.
> I think it important to have an entry point otherwise all that's being shown is a possible setup.
> ...




Shouldn't be an issue for adding approx entry / exit periods on the charts - (ie for my prior posts (in sgn, ogc etc) with charts you could consider the time of each thread posting would be the last traded price I guess. Was thinking probably will mark on a short term (15 min , 1hr or whatever)  so at least will be trackable.  Don't have a chance today however if time permits on Monday will update existing charts with the point in time that each prior post was made and then in future posts mark points on the latest live charts.  

Although I do use price stops (sometimes up to 5%) my stops are generally based more on the levels / momentum of Indicators themselves and do need quite a level of micromanagement.  This is all done manually instead of programmed charting S/W. 

Also planning on showing failure of support lines / failures when they occur - Exits are usually only enforced on 2 / 4 hr or longer time periods (too much static on shorter periods and othewise will exit prematurely each time)- Although sometimes if the chart is looking very ominous short term i'll exit and look for another entry when conditions look to improve.


----------



## BBand (8 August 2010)

*Re: Reversal Swing Convergence Divergence*

Its possible to prove that black is in fact white!

Our esteemed politicians practice this all the time

All they do is be selective in collecting opposition statements, link them together in the appropriate manner - and viola, black becomes white
or - they can just ignore info/statements which does not suit their cause.

"Good" debaters can do this - when faced with this situation - all you can do is walk away or get all hot and bothered .......................

By the way, what was the opinion of Glenn's post #61. The silence has been deafening
Maybe - Oh, they are an OEM and as such you can't trust what they print, they are just trying to sell you something - so that goes into the "ignore basket"
The manufacturers opinion:
"The divergence concept is perhaps one of the most powerful reversal techniques discovered by Technical Analysis"

I like the e signal concept also - they do not trade the actual move created by the divergence, reference Techs last post, they are more concerned as to where the divergence occurs within the overall price action - must have another look at Elliot wave. Or maybe its just simple trendline trading - anyway there looks like two trades there.
One divergence and the other a trendline break

Sinner, I have not read the "notes" but I can see from Techs charts the potential
Also like the "parallel channel" - based on linear regression?, will check it out, looks like an improvement that I could incorporate into my trendline strategy (good filter for false breaks?)

Thanks Glenn and Sinner, I will definately check out your posts

Is there such a thing as being technically "right" ??????????????????

How is your bottom line
Peter 










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## tech/a (8 August 2010)

*Re: Reversal Swing Convergence Divergence*

Ive read Glenns post and had a look at the indicators.
I think we can code them up and test them.



> The manufacturers opinion:
> "The divergence concept is perhaps one of the most powerful reversal techniques discovered by Technical Analysis"




There are many "claims" like this on analysis in general and few truly professional works to discuss these claims.

One serious researcher seems to be DR Bruce Vanstone.
Google him if interested.
He has some interesting work out there. Here are the prospects found By AGET today for a type 2 setup.

Thought Id post them up and leave it to you to chose those best prospects unless you wish to follow them all.
Should TYPE 2 (AGET) DIVERGENCE TRADES be in a separate thread??
That way the other divergence doesn't get tangled up.(RSCD)

Below also is one of the prospect ALL which has all boxes ticked.
The wave count is rubbish though but its the divergence though isnt it?

It hasnt triggered a buy yet.
(Not outside the Linear Regression Channel).


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## BBand (8 August 2010)

*Re: Reversal Swing Convergence Divergence*

Hi Tech,
That listing is just pure rubbish and demonstrates the typical politician approach

Most of the stocks just would not even be considered due to their lack of liquidity

and I would think that most people who use divergence, would look for them in a TRENDING market, with the view to entering a trade following the warning given by the formation of a price/indicator divergence
NOT IN A RANGE BOUND MARKET!!!!!!!!!!!!!

Most of the stocks in your list meet one of those conditions

This "debate" is meaningless

Bottom line
That listing is rubbish
You qualify as a politician

So I'll just walk away and do something meaningful and not waste my time

Peter 

Why do you do this Tech? - you are far above this #%$* !!


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## tech/a (8 August 2010)

*Re: Reversal Swing Convergence Divergence*



BBand said:


> Hi Tech,
> That listing is just pure rubbish and demonstrates the typical politician approach
> 
> Most of the stocks just would not even be considered due to their lack of liquidity
> ...




What the??

Its a search by Advanced Get for type 2 divergence trades.
The software found them not me.
Have I missed something here?
I thought it was agreed that the Type 2 trades by AGET would be excellent prospects.
Tell me what filters you want----I'm just using those set by the principals E signals Advanced Get software say to use??

I just put the search results up for transparency.
I don't like the setups either that's why I said make a choice---or 2 ALL looks best hence I put it up.
If no body likes anything then wait till next scan then choose.
No smoke and mirrors.


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## tech/a (8 August 2010)

*Re: Reversal Swing Convergence Divergence*

Thanks to Boggo for pointing out I hadnt updated my charts 
ALL has triggered a buy on Friday.
Second chart is easier to see
CLICK to EXPAND


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## sinner (8 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> Sinner.
> 
> I certainly like the idea of the type 2 AGET setup being used.
> The rules are very clear and I have GET so can find trades to monitor.
> ...




Hi tech, I have no idea why you keep using a stochastic oscillator for your divergence?

Here are some examples, from the past, that I spotted in advance warning of ending of wave 5 impending top/bottom. All of the wave counting was done *using* the AO. You can check the dates on the posts to see they were called in advance.

View attachment 38313

http://www.forexfactory.com/showpost.php?p=3166879&postcount=154805
View attachment 38314

https://www.aussiestockforums.com/forums/showpost.php?p=560473&postcount=7661
View attachment 38315

http://www.forexfactory.com/showpost.php?p=3669657&postcount=5990

If you were to trade the above divergence signals as the Bill Williams "twin peaks" signal, you would place a sell stop below the low of the bar where momentum goes less than previous bar. I included some crude arrows on the EURUSD 1.5 top. Not to say I took those specific trades, but you can see the divergence can and does indicate market tops followed by at least some reversal (see below) in many cases.

In my experience, a momentum divergence will take the price to test the wave 4 low in a A-B-C type correction followed by a re-test of the high. Euro was an exception so far and led to re-test (and break) of the low. 

I believe in the GET trading manual, wave 4 start is the target for a type 2 trade.

In the case of ALL, I would have had a buy stop at 3.5 (1c above the Aug 5 high) with SL at 3.32 *if* I was trading it as a twin peaks, which I wouldn't because it doesn't really look like a wave 5 low to me using the AO.
View attachment 38316


Sorry to mix up EW in all this.



> I particularly like the 94% claim will keep an eye on that one.




I like it too. Like I mentioned already, Bill Williams made identical observations about the AO in his book through his own backtesting. He gives examples which he traded live, including one case where he was on CNBC or Bloomberg or something called a top in the USDCHF against 3 or 4 other analysts and ended up being right. Considering the oscillator formulas are almost identical there is probably something to the idea.


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## tech/a (8 August 2010)

*Re: Reversal Swing Convergence Divergence*



> I have no idea why you keep using a stochastic oscillator for your divergence?




Pretty easy really.
Its the one used by AGET in their type 2 trades.
Happy to use whatever you like.
But thought you'd suggested the type 2 trade.

Must be missing something once again?

Please feel free to suggest any chart in future be it a Stock or Forex or Futures chart so we can observe the out perfomance of this trading method.
My selections just dont seem to cut the mustard.---I'll refrain then.
Look forward to watching things unfold in *Realtime* rather than hindsite.

So type 2 trades are out then?


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## sinner (8 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> Pretty easy really.
> Its the one used by AGET in their type 2 trades.
> Happy to use whatever you like.
> But thought you'd suggested the type 2 trade.
> ...




On the website, current trading manual uses the Elliott Wave Oscillator. If you go to the website and look at chapter 7 and chapter 11 you will see them using this oscillator. I have no idea how you can say GET uses sto for their type 2 trades when the example screenshot *you* posted is using the Elliott Wave Oscillator! The rules that *you* reposted, state plainly "make sure *the Elliott Wave Oscillator* shows divergence with its wave 3 peak..." 

Here is some information on that oscillator:

http://www.tradingfives.com/articles/elliott_oscillator.htm



> My selections just dont seem to cut the mustard.---I'll refrain then.
> Look forward to watching things unfold in *Realtime* rather than hindsite.




What? I posted those screenshots to show how I *personally* interpret the divergence, that is all! Because you seem to have trouble understanding either the "twin peaks" or type 2 divergence I wanted to show some examples from my own experience.

The type 2 trade rules plainly state there must be a pullback divergence with the wave 3 peak of the *Elliott Wave Oscillator*, you use a STO to show a divergence that barely has a pullback at all on the proper oscillator which is supposed to be used and now you're going to take your ball and go home because I pointed out it doesn't fit the trade parameters of either the divergence I like to use or the one you are supposed to be backtesting?


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## It's Snake Pliskin (8 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> Pretty easy really.
> My selections just dont seem to cut the mustard.---I'll refrain then.
> Look forward to watching things unfold in *Realtime* rather than hindsite.



With respect to the hindsight aspect, any description or informing of a strategy may need a hindsight chart to help with the transfer of information. With respect to a live trade the foresight comes from the knowledge we have gained. Trading knowledge aren't we? (more practical than theoretical)

Considering you don't trade divergence setups why not let yourself learn something from others who are keen to discuss and give some realtime examples?


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## tech/a (9 August 2010)

*Re: Reversal Swing Convergence Divergence*

Snake
I dont trade divergence as I have tested it  over 1000s of portfolios and it doesnt deliver an edge. I'm attempting to show others how and why divergence to trade is a waste of time in the long term.

This meets a whole heap of flack as "everyone Knows" trading divergence is one of the most powerful tools in technical analysis.Peoples beliefes are being challenged and they dont like it!

People are getting all tied up in th TYPE of ocsillator used.
Doesnt matter----
*ALL* oscillators are derived from OPEN/CLOSE/HIGH/LOW/RANGE/VOLUME or OPEN INTEREST.

Sinner seems to think altering the oscillator will make a vast difference.
You can see the difference in the chart attached.(Well maybe you can but I cant!) ---perhaps a few are learning something??

So we have one demo in progress from Eunza and nothing else as my example was evidently doomed to failure.(Admit the return to zero condition is yet to be met)

Happy for Sinner to pop up some AO divergence setups to forward trade them.

Sinner how'd the races go?


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## eunza (9 August 2010)

*Re: Reversal Swing Convergence Divergence*

Ok - So i've placed a few posts on the RSCD analysis on SGN, OGC and DUE for the last week or so.

As a way of approximately tracking when and where the hypothetical entries / holds or exits are i've added vertical lines for BUY (green), HOLD (Blue) and will use red for any possible exits. (none as yet)

Any discrepencies on the charts with times etc let me know.

Again these entry and exit Posts are PURELY HYPOTHETICIAL for the purpose of the RSCD discussion.


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## tech/a (9 August 2010)

*Re: Reversal Swing Convergence Divergence*

Thanks Eunza.
What I do note and wish to point out in all charts thrown up (including ALL) is there are many cases shown on the charts where there is divergence which has both succeeded and failed.
The addition of filters is an attempt to increase the reliability of an indicator which is often giving signals which equate to very little.

I note that Sinner sees a pullback within an up move as a successful divergence trade.(There are also some un successful ones on the charts presented.)

Pitty we dont have more than Eunzas charts to consider.


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## eunza (9 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> Thanks Eunza.
> What I do note and wish to point out in all charts thrown up (including ALL) is there are many cases shown on the charts where there is divergence which has both succeeded and failed.
> The addition of filters is an attempt to increase the reliability of an indicator which is often giving signals which equate to very little.
> 
> ...




Hi Tech/A - The charts that I have posted today are shorter time charts - 30min / 2hr etc - This is just so I can easily insert the entry exit points.

However I do switch between timelines quite consistently.  The shorter time lines are almost impossible to trade on their own - 

If you compare the 1 day / 2day / 1 week charts RCD results to the shorter intraday charts these shorter ones show alot more movement that are cleaned / smoothed when set in a longer time frame.  Usually the longer periods are more reliable however you want to also see the short term picture. (and so you don't have to wait until the candle closes)


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## tech/a (9 August 2010)

*Re: Reversal Swing Convergence Divergence*

Yes I understand.
It does happen regularly on all timeframes.
But agree longer timeframes tend to have a larger footprint and as such eliminate some noise.


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## Boggo (9 August 2010)

*Re: Reversal Swing Convergence Divergence*

Convergence and divergence in conjunction with a pattern reversal area or a level of support/resistance can be used to reinforce an opinion of a potential change of direction, or an end of current direction.
Other than that it is a case of which came first, the chicken or the egg.
(It was actually the chicken  )
Just my 
.


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## professor_frink (9 August 2010)

*Re: Reversal Swing Convergence Divergence*



It's Snake Pliskin said:


> Hi Professor,
> 
> You have labeled the divergence on the price extremes. Are you using the close price or price extreme as the points of price for the divergence?




Hi Snake, 

I've used the extremes(lows) for the divergence. The white lines that were on the chart I posted were simply drawn on, the green arrows are what the software spat out at me after plotting the code I put together.

Cheers


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## tech/a (9 August 2010)

*Re: Reversal Swing Convergence Divergence*

Question *to those Testing *divergence or have tested it.

I notice Prof's code uses LLV.

Metastock and others can use Peak and Trough codes.
I will show how both of these codes give false results in systems testing---but before I do I wonder if others use anything else?

Not the Oscillator but the method of identifying the 2 or more peaks or troughs in either price or oscillator.

*This is very important *to those who have used any of the above codes in testing.
Simply it wont be correct.
*Demo later.*


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## professor_frink (9 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> I will show how both of these codes give false results in systems testing---but before I do I wonder if others use anything else?




That would be good tech


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## tech/a (9 August 2010)

*Re: Reversal Swing Convergence Divergence*

When testing only the last swing will be taken.
I hope the charts shown make it clear to those who actually test.
If you do youll know exactly what I mean.
If you dont then be aware of the fact that many signals and trades which come along in R/T trading wont be found by code (algorithms) in systems tests.

Same thing happens when using Peak and trough Code to identify peaks and troughs but even worse.

Ive used with Profs permission his chart XAO and his code for the example.


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## professor_frink (10 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> When testing only the last swing will be taken.
> I hope the charts shown make it clear to those who actually test.
> If you do youll know exactly what I mean.
> If you dont then be aware of the fact that many signals and trades which come along in R/T trading wont be found by code (algorithms) in systems tests.
> ...




Is there a data problem here? I have a higher low at the start of July, so no divergence

There is aproblem with my code, but having signals change as a move develops wasn't it(I just walked it through using bar replay and it spat out in real time exactly as it shows on the chart I highlighted). I would have thought that the above problem you described would have been the case if using zig zag, which is why I didn't use it(well that and the fact I wouldn't really know where to start with the zig zag!).

The code and chart I posted earlier showed the same divergence you said would disappear during May, but didn't show any in July, because there was none according to the code I wrote.

The main problem that my code will encounter is a lookback problem - if a low is printed that takes more than a month to break down to a new low, then the code won't pick up any divergence, as both the RSI and price hit new short term lows together when there is divergence over a longer period.

Attached chart shows what I'm talking about - it picked up the short term divergence based on the action in the blue box on the chart, but isn't capable of picking up what I highlighted with the 2 white lines due to it only looking back 20 bars.


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## tech/a (10 August 2010)

*Re: Reversal Swing Convergence Divergence*

Morning.

Perhaps this will make it clearer.

If you search for a LLV,20 of anything today and something is at its LLV for the past 20 days it will be found.
If you run that same test tomorrow and the price has made a lower low then it will show it again on that lower low.
If you run the test the next day and price trades at another lower low then THAT low will be shown.
The initial low which was TRUE 2 days ago is now False.

*SO WITH *a *SYSTEMS* test the *ONLY* way the Algorithm of a LLV can be confirmed is (If using a 20 period condition) to wait until the NEXT 20 bars pass before printing the trade.

UNLESS you have a LATCH locking the FIRST occurrence of the condition you will be getting false results.

Anyway if this doesn't help ----- you may wish to re visit this post when you realize your R/T trading isn't emulating your systems testing (Meaning anyone who trades off self designed systems.)----


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## professor_frink (10 August 2010)

*Re: Reversal Swing Convergence Divergence*



tech/a said:


> Morning.
> 
> Perhaps this will make it clearer.
> 
> ...




oh dear we are starting go around in circles. I mustn't have made myself clear so I'll highlight the important part of the post I previously made:



professor_frink said:


> I just walked it through using bar replay and *it spat out in real time exactly as it shows on the chart I highlighted. *




The code I posted up doesn't look forward.


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## tech/a (10 August 2010)

*Re: Reversal Swing Convergence Divergence*



professor_frink said:


> oh dear we are starting go around in circles. I mustn't have made myself clear so I'll highlight the important part of the post I previously made:
> 
> 
> 
> The code I posted up doesn't look forward.




Ok---


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## eunza (10 August 2010)

*Re: Reversal Swing Convergence Divergence*

Hi Guys,

A few updates for today - each subsequent ASX Code has been posted in the appropriate thread.

*DUE* - looking bearish.
*OGC *- looking a little mixed - might be a possible reentry on short term strength
*SGN* - Looking very strong on intraday, daily and weekly (will post a screen of the weekly soon if i get a chance)


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## It's Snake Pliskin (10 August 2010)

*Re: Reversal Swing Convergence Divergence*



professor_frink said:


> Hi Snake,
> 
> I've used the extremes(lows) for the divergence. The white lines that were on the chart I posted were simply drawn on, the green arrows are what the software spat out at me after plotting the code I put together.
> 
> Cheers



Thanks Professor.


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