MACD - interpreting divergences

[Bin57again]

Could someone help me to interpret the following. Is there a divergence or not? There looks to be a divergence on MACD-H but not on MACD?
Thanks

 

[wayneL]

Re: MACD-interpreting divergences

Could someone help me to interpret the following. Is there a divergence or not? There looks to be a divergence on MACD-H but not on MACD?
Thanks

Yes,

But divers don't really mean anything in sideways markets like the chart you have. They mean something (maybe) in trends. What you have here is the effect of the two EMAs equalizing because of sideways price action in the way of a trend.

Plot the 12 ema & 26 ema (which is what MACD measures the distance between) on the chart and you will see what I mean

<edit to add> - the diver on MACD-H in the downtrend was a more valid one.

 

[>Apocalypto<]

Could someone help me to interpret the following. Is there a divergence or not? There looks to be a divergence on MACD-H but not on MACD?
Thanks

Looks like a possible bullish set up with upward pressure from below but a break out with volume needed to confirm the pattern.

I agree with waynel you need the stock to be in a trend to show divergence.

 

[tech/a]

Its a type 2 divergence in a down trend.

However prolonged trends I agree tend to give better signals.
Again they reflect crowd behaviour in price and volume.

Note the triangle!
For what its worth there are better to trade in my view.
This is in a corrective phase and not showing many signs of emerging out of it.

Trade it
Actually breakouts without volume can be early warnings of breakouts with volume.

 

[Bin57again]

Its a type 2 divergence in a down trend.

Tech, what's a type 2 divergence (or for that matter, a type 1)?

Thanks to all for your replies.
I know TA is not a science but it seems to me that in a powerful uptrend, divergences are not reliable. Would others agree with that?
Just one example (before and after) using Twiggs - SMY

 

[wayneL]

Thanks to all for your replies.
I know TA is not a science but it seems to me that in a powerful uptrend, divergences are not reliable. Would others agree with that?
Just one example (before and after) using Twiggs - SMY

They suck!

It's a signal against the trend and if traded, should probably be a different technique than trading with the trend

But I would pay more attention to them in a downtrend and you have an idea that the stock is good value, than in an uptrend.

 

[tech/a]

Type (1) Price Higher highs and Indicator Lower Highs.
Type (2) Price equal lows and indicator Higher lows.
Type (3) Price higher highs and indicator Equal lows.

And Vice versa.

Triple divergence can be seen as a stronger divergence by some.

As for accuracy divergence needs to be supported by other analysis,its as it says an INDICATOR of POSSIBLE price action.
Often a dropping of volume towards a top will be a confirming signal followed by a move down---often on average volume.

Here is a few examples on the XJO

 

[It's Snake Pliskin]

Most importantly:

Is it a divergence of WHAT?
Momentum, volume, etc...Fitting the divergence...no no.
What is the context?
For EW fans can they be used for leading indicators of waves? Maybe? Maybe not?

 

[nizar]

The first chart on this thread looks good.
Broke out of descending triangle in early october with that green candle, and now forming a small ascending triangle.

 

[>Apocalypto<]

Trade it
Actually breakouts without volume can be early warnings of breakouts with volume.

What the hell does that mean Tech/A?

In the first posted chart.

I see a base with buyers trying to push a price up but getting knocked back at that point of resistance.

So if it broke that rejection point with heavy upward thrusting pressure from the buyers that could be a opportunity to go long as long as the resistance became support and was not broken on its first retracement, if it occurred.

 

[>Apocalypto<]

The first chart on this thread looks good.
Broke out of descending triangle in early october with that green candle, and now forming a small ascending triangle.

Totally agree with you Nizar :iagree:
But a volume plot is need to confirm the the break out in my trading system.

 

[tech/a]

What the hell does that mean Tech/A?

An excellent reaction!!!

A breakout on low volume indicates that price is rising without being fed by Supply--(Sellers).If there is a lack of sellers as price moves forward then buyes will have to chase higher prices to get a fill.buyers will often wait at a price level for price to come down to them. But where sellers wont budge then reluctantly(low volume) buyers move up to sellers.

Often this preceeds astute buyers who see this and as many others see the same so volume and price can often rise exponentially.
Much can be learned about crowd behaviour from Volume and price ranges in a single bar. Often you'll find where price rises 30% plus in a single day with huge volume or 50% plus in 2 days,This will herald the exact opposite to rising prices---huge and severe selling is often seen.

Dont think like the crowd---take a good look at a few charts and soon it will become evident that much or which is ACCEPTED is infact dangerous.
While I'm not saying EVERY case-- it is possible to "read" volume and price to a degree which will place you often on the RIGHT side of your trade.

Both before (recognising a breakout on LOW volume)--the buy.
And After (recognising a blow off on HIGH volume)--the sell.

 

[>Apocalypto<]

An excellent reaction!!!

A breakout on low volume indicates that price is rising without being fed by Supply--(Sellers).If there is a lack of sellers as price moves forward then buyes will have to chase higher prices to get a fill.buyers will often wait at a price level for price to come down to them. But where sellers wont budge then reluctantly(low volume) buyers move up to sellers.

Often this preceeds astute buyers who see this and as many others see the same so volume and price can often rise exponentially.
Much can be learned about crowd behaviour from Volume and price ranges in a single bar. Often you'll find where price rises 30% plus in a single day with huge volume or 50% plus in 2 days,This will herald the exact opposite to rising prices---huge and severe selling is often seen.

Dont think like the crowd---take a good look at a few charts and soon it will become evident that much or which is ACCEPTED is infact dangerous.
While I'm not saying EVERY case-- it is possible to "read" volume and price to a degree which will place you often on the RIGHT side of your trade.

Both before (recognising a breakout on LOW volume)--the buy.
And After (recognising a blow off on HIGH volume)--the sell.

Tech/A

That is really thinking out side the square and looking at supply demand as a driver, from a whole new angle.

That was very interesting and the points you make are excellent.

Thank you for explaining that to me. It makes a lot of sense.

I have seen that once a trend just gets going were there is low volume due to no one selling as they can see the demand.

But I think I would have to fully understand the principles you have learnt and know, as i may see it wrong and get caught on a false break out.

Thanks Tech/A

 

[tech/a]

Its a concept that takes a while to get your head around.One which fortunately most of the crowd dont wish to investigate.---they are just intesrested in making $5000 turn into $50000 TODAY.

Find out all you can on Wychoff---Worth searching Motorways posts he's been at this stuff longer than I.

There is analysis software called Tradeguider (Well thats the one I use) which is excellent. If you wish to investigate more over on Reefcap is much on it and is on going. Pretty pricy though---but what price?? for me it was one trade.

Gets the grey matter going which in turn gets the green matter-----

 

[bunyip]

Could someone help me to interpret the following. Is there a divergence or not? There looks to be a divergence on MACD-H but not on MACD?
Thanks

There is no divergence in the chart example you've shown.
For a bearish divergence to have occurred you must first have two peaks in the stock or market, accompanied by corresponding peaks in an indicator like MACD, RSI, Stochastic or whatever. The second peak in the market must be equal to or higher than the first peak, whereas the corresponding peaks in the indicator must show the second peak to be lower than the first peak.
On your chart you've drawn a horizontal trend line which, at first glance, appears to connect two peaks in the stock. However, the second of these peaks is not a peak at all. It would only be a peak if the stock stopped rising, then put in a down bar with a lower top and lower bottom than the previous bar.
Clearly this stock is still going up and has not yet peaked, therefore you don't have two peaks on which to draw a trend line that can then be compared to a trend line drawn across the two corresponding peaks on MACD.

Divergences give many misleading signals in my experience. Frequently a bearish divergence in an uptrending stock results in a retracement against the trend. However, these retracements tend to be short lived, particularly if the uptrend is strong. Once the profit takers who caused the retracement have finished selling, new buying pressure comes back in from bargain hunters who consider the stock is now cheap enough to make it attractive. The result is the resumption of the uptrend.

Sometimes a divergence is followed by a genuine trend change, but I wouldn't count on it.

Bunyip

 

[motorway]

Tech/A

That is really thinking out side the square and looking at supply demand as a driver, from a whole new angle.

That was very interesting and the points you make are excellent.

Thank you for explaining that to me. It makes a lot of sense.

I have seen that once a trend just gets going were there is low volume due to no one selling as they can see the demand.

But I think I would have to fully understand the principles you have learnt and know, as i may see it wrong and get caught on a false break out.

Thanks Tech/A

If you stop just looking at price as just a random or not indivisible cipher..
And you look at price as something created by two sides interacting
With each side gaining and losing a following.

You will I think add a depth to analysis that is impossible when only looking through one dimensional eyes..

Such analysis focuses on the How not only on the What..

Instead of double bottoms .. It is a secondary test that will give a response.
What Vs How

The How is where intent is revealed.

On high volume large price spread
On High volume narrow price spread
Large range down bar but with the close at the high
etc

What, is identified to ask how
how reveals the demand supply situation..
trend line break .... How , New high... How etc

Pullback with No supply indication of strength..
What and how..

Demand Vs supply
How is demand meeting supply ?

looked at through two other principles

effort Vs result ( the vertical dimension of demand and supply )

cause and effect ( The horizontal dimension of demand and supply )

1st question what is happening

Are prices going up down or sidways ?

Demand Vs supply

2nd question How..

prices try to go down
They try to go up

Where is the ease of movement ?
Where is the line of least resistance ?
Which side has the following.
Which side has none.


Such methodolgy is called the Wyckoff Method
After Richard Wyckoff



motorway