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sharpshorts

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Reply with quote  #1 
Reversal scalps using divergence indicator signals...
Divergence plays a big part in my trading methods... I have multiple time frame charts open at all times on my trade station layout (Daily, minute based and Tick based).
Divergence prints regularly in all markets and on any time frame chart.

The example below includes a before and after look at a trade taken today...Both charts are watched for signals...a bracket order** is placed via the on-chart system on the 30 tick chart. (**my preference is to use a 4 tick stop and 10 tick target when trading the YM)

In this case the 30 tick showed 2xD divergence (the MACD histogram and the stochastic).
The TRIX histo also happened to show divergence...
Although the MACD EMAs did not show divergence (the MACD 'fast' and 'signal' EMA lines i.e. the trend indication), I anticipated a reversal anyway. The MACD EMAs are just slightly slower to react to price action than are the histograms and stochastic (oscillators)...
.01;05;04 +10 ..jpg In the study pane, there may be 1xD, 2xD or 3xD indicator divergences (EMA trend, MACD histo and Stochastic).
Entries always involve an element of luck but IMO using divergences enhances the odds of a successful "guess".


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Koog

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Reply with quote  #2 
Thank You Sharpshorts...
I must admit I understand this signal better than the Slingshot method. 
I have not been the best at spotting/using divergence, but to see it used in an innerday
minute chart is exciting  ....

Nice trade....
 
 
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sharpshorts

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Reply with quote  #3 
Thx, that divergence set-up and exit was about as 'perfect' an example as I could hope for. 
I took three other trades today, got stopped-out on two of them for a 2 win/2 loss day. 

I  may not be describing it very well to others...I've been using it forever and by now it has  become automatic to me  --   I see it all the time, whether I'm looking at a daily chart or an inter-day chart. Divergence is easier to spot after price has already started to make its move. To use it as an early entry signal, you will very often need to anticipate that it may develop.

I do not short -- I only use divergence when price has been in a down-trend.
My definition of divergence (DIV):
If price recently made a couple of Lower Lows while an indicator made a couple of Higher Lows, then the indicator is diverging from price. 

Of course divergences don't always print before each & every price reversal nor does price always reverse just because there were divergences.
In the latter case I say that divergence failed to produce a reversal.


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Koog

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Reply with quote  #4 
I made a single trade today for a small loss because I didn't let the trade come to me. One of those trade that you know is not going to work as soon as it triggers.... The trade works allot better when you use what you know, and not get impatient ... Divergence is a tool I've seen several traders use with a great deal of success. I considered it best for a daily/weekly chart, not fast enough for a 5 minute chart. I knew there were indicators/oscillators that would work on a streaming chart, and at one time tried using MACD but I got little help from it. It had not occurred to me to use it looking for divergence, especially where I didn't expect it.....
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sharpshorts

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Reply with quote  #5 
Koog,
Re:   "The trade works allot better when you use what you know"
Agreed, excellent advice.



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Koog

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Reply with quote  #6 
Quote:
Originally Posted by sharpshorts
Koog,
Re:   "The trade works allot better when you use what you know"
Agreed, excellent advice.




Good Morning Sharpshorts.... Have a great Tuesday.... CMAC has been trading in and out of the NUGT which creates my first opportunity to test out your Divergence tool.... Thank You Sir... 
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Koog

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Reply with quote  #7 
Sharpshorts... Using the MACD on a 5/30 minute chart. while watching for 
Price/indicator divergence, works very well. While price was decreasing, the MACD blue bars (i did not have histograph as an option) were rising. 
 Also noteworthy was that a streaming chart needs to be watched at the moment, because after a time this divergence blends into the chart, and seems to give way to a chart reset in a sense .... 
 
 
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sharpshorts

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Reply with quote  #8 
Koog - I don't experience a "reset" on my streaming charts - sometimes what appears at first glance to be a divergence will disappear as more bars get printed, if that's what you mean. 

Here's a look at a 3 minute per bar chart from the major market open at 9:30...(I've removed my normal stochastic from the study pane for the sake of clarity).
There are two sets of divergences, annotated by the diagonals drawn between the pairs of LL's that printed on the TRIX histo, price candles and MACD histo.
Notice that at A-B, the MACD EMAs are also divergent but at C-D they aren't...
In general, the MACD histogram will print divergences 'sooner' and more often than will the MACD EMAs.
DIV reversal.jpg


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Littleshark

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Reply with quote  #9 
ss ,,, I am sitting back and studying your charting advice ,,, like it ... just so you know others are watching too ... [thumb]
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Koog

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Reply with quote  #10 
Yes Sharpshorts.. Reset was the wrong word, disappear is a better way of saying it.

 Looking at your chart, Im not sure that the 12,26,9 standard setting im using is fast enough on my 5 minute per bar chart.
So i am experimenting with settings.
Is that even logical or not...?
You posted a very nice chart for the study... Much Obliged 
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sharpshorts

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Reply with quote  #11 
Great, that was the idea, to present things that others might benefit from.

I have tried different MACD parameters but was unable to improve upon the std. setting...
I was able to adjust TRIX and others to better suit me. Ya gotta try stuff to come up with the answers.
 You may (or may not) find that you can begin to see divergences with the indicators
 that you are already using. I have seen them with the Awesome Oscillator, RSI,
Williams %R, CCI, Momentum and most others I've tried.

Alternatively, create a new chart template with an additional study
for the MACD (and/or stochastic) but place it below your current indicators
to easily compare whether they enhance or confuse your current chart reads.

The TRIX (as a histo) and Awe Osc over the MACD are compared... 
Histos compared                                     ---.jpg


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Koog

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Reply with quote  #12 
Opening a second chart for comparison sounds like a good way to shorten the learning curve Sharpshorts. I appreciate the insight, and your sharing of experience....
While on the subject of divergence, another thought starts creeping into mind. I have many times seen share price move higher followed by a pullback before resuming the move even higher. Many times on a daily chart I have noticed what is nearly a 50% retrace of a tall supply candle before resuming the run higher. I believe this to be referred to as consolidation.
With all that said, I have been stopped out more than once by what turns out to be a consolidation move just to watch the price move much higher without me. I understand resistance comes in many forms and there are in no way any guarantees that if you overstay in a trade, your not gonna pay....
It begs the question, is there a way to recognize the difference between consolidation and exhaustion...

It's not my intent to put anyone on the spot with a question that is loaded with so many variables that in no way can be answered in one paragraph. I'm simply opening a subject that may draw enough attention to warrant comment from any one and everyone.
Thanks for reading
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sharpshorts

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Reply with quote  #13 
"many times seen share price move higher followed by a pullback before resuming the move even higher"

Very, very common price action.  I have not found a definitive way to tell when  there will be just a 'normal' pullback or if price will just keep dipping down further. 
 
Some times I'll take a very small gain or a BE on the pull-back and wait for another opportunity.  If I entered the trade well (like a couple of ticks below a downtrend line for example) and price then popped up but didn't run to my target, I may hold the position as it pulls back, perhaps as low as to the point where price broke the trend line, with hopes that a second push moves price up to my target.

Either way it's a WAG (guesses are sometimes helped out by my 'feel' for the current P/A). 

If price reversed with divergence before the initial run, I see a  'normal' pullback as an opportunity to add to my position (or to enter into a new position if I didn't play the divergence). It's sort of a second chance for taking the play. If price has also broken a recent trend line and then retraced, so much the better... 
I call those Trend Line Break RE-Tests...

Another similar trade with a funny name is the Money-on-the-Floor (MOF).  It is like a TLB ReTest except the initial pop usually makes a new relative high and the drop makes the 1st new higher low of a new up trend...either of the two trade patterns may or may not show MT SLINGS too...(I know, I know - way  too much information). But they all are based on basic price action patterns that continually repeat, day after day.

I have a Chinese menu of trade patterns that I use...at times I'll mix and match them, sometimes I choose one from column A, other times two from column B... 
Again I'll mention I only trade to the long side and rarely short. I just 'see' bullish reversals better than bearish ones. Short term scalping presents enough opportunities each day to keep me busy.

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Littleshark

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Reply with quote  #14 
Nice stuff Sharpshorts ...

Koog ,,, an "overall" pole up 50% bull flag(BF) retrace entry point "often" comes at the rising 10ema/10ma line ,,, example http://schrts.co/5Y4RGN IFON ,,,

>>> ALSO look for past support as BF target low > put "inspect" horizontal line on Feb.27 CLOSE & then on FEB.27 low ~ look left ... test - test - test - on other pole up pop stocks ,,, (2-18 EDIT:correct that Feb.27 to be Jan.27 ~ sorry)

look back for BULL style Market Structure tallest volume candlesticks as the MAIN past support point ='s horizontal line on Dec.9 low ... find them in advance to target BF low out in the White Space ...

enough interruption from me ...
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sharpshorts

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Reply with quote  #15 
Littleshark, thx for spotting IFON.
I borrowed your chart -- moved MACD into the price pane and added comments.
With StockCharts, I have trouble seeing some indicator shapes when they are shown as separate study panes.

I contend that almost all price action & indicator patterns print regardless of the time frame you use.
DIV reversal.jpg 



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Koog

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Reply with quote  #16 
Very interesting example and information to put into a buffett of trading types Guys..
I see right away in the example how i'v gotten in trouble
by entering the trade too early. i need to
work on my patience for the smarter entry... 
Have a Great Day everyone...

[Sharpshorts] said; I contend that almost all price action & indicator patterns print regardless of the time frame you use.

My fear has always been making trading more difficult than it needs to be.. Simpler is the path of least resistance for myself.
Ill work on mastering the standard setting before taking on the next level of trial and error investigating. I simply need to work on pattern recognition for best results...
Thanks Guys...




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Littleshark

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Reply with quote  #17 
Thanks for the IFON chart reply SS ...

I do like your stuff ,,, it trains my eye to look at the ink blots a little differently ,,, for the better ... [thumb]


p.s. ,,, as a free user of Stockcharts ,,, I can't post annotated charts ,,, but I often do annotate charts myself at home for my own use ... and have played with placing indicators behind price many times ... but have not perfected that to the degree that SS has ... so nice to get the tutoring on that too ... SS is my newest mentor ...
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Koog

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Reply with quote  #18 
Using GALT as my test subject this morning.. I have found that I see divergence very clearly on the 30min tick using the MACD Histograph which eventually gave way to a nice 10cent rise in price, dispite the low volume. 
I noted however it is not as evident on the 5min nor the 1hr ... The study continues. 
Thanks for the comments Gentlemen...
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sharpshorts

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Reply with quote  #19 
Littleshark, with StockCharts I just use the Snipping tool to copy a web-chart then paste it into M/S Paint for re-sizing and annotations.

My trading software has a lot of drawing tools built in to it but will still use Paint too...I like Gadwin Systems PrintScreen (free-ware) for snapshots because it can be configured to re-size, add a time stamp, save and name any chart window to a file I designate -- all with just a single mouse click or keystroke. 
I do a before (rational for entry) & an after (results) snap of every trade...At the end of the day I'll pair them up, do some more drawing and save them to another dated folder.

I've been doing it for years and years...

Snapshots are a great way to document and review good/bad trading days/weeks/months plus it makes filling out my statistic spreadsheets very quick and simple...just part of my daily routine and takes an inconsequential amount of time... but it really helps me stay on track with disciplined trading. 

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Littleshark

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Reply with quote  #20 
SS ,,, I have a high school education ,,, am age 66 now ,,, no cell phone yet ,,, land line phone still ... not very tech savvy ...

some one tried to help me do a snipping tool capture in the past ... I got "stuck" when I had to save it to a "file" ... i had no tech savvy on how to do that ...

so I just make do with what I know how to do ...

thanks for the advice ,,, I could find some one to teach me that stuff ... but I don't know if I want to go that far ... I think I'll just mark up charts for myself ,,, and not save to post them here ...

I already post way to much ,,, sigh ...

nice to see you "smarter then I tech educated college guys" do the advanced posting though ...

now if someone needs to know how to catch fish as others around me go fishless ,,, I'm your man ... took the family ocean fishing once on vacation in Oregon ... my family filled a tub to the top with over 50 fish ,,, the other 50 people on the charter boat caught about 10 fish total between them ... I kept a few to eat ,, and told the captain to divide the rest among the other fishermen ...

my son stood at the back of the boat fishing with the captains son ,,, my son caught fish on each cast ~ as the captains son caught none ,,, he then got his dad the captain to fish beside my son too ... after 10 more casts of my son catching a fish on each cast and the captain & son catching NONE ,,, the Captain threw down his rod in disgust ,,, and stormed off to the front of the boat and his other clients ...

they couldn't "feel" the bites ... as the bass sucked in the lure and then exhaled it ... my son and me and wife and kids knew how to do that ...

it is fun catching fish as others on both sides of me ~ or in boats all around me ~ go fishless ... done it a hundred times ...  good thing most people are clueless about how to really fish ,,, or the lakes would be cleaned out ...
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acestocksplayer

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Reply with quote  #21 
Great story, there Sharky!

Don't worry about not being tech savvy. If the enemy ever knocks out our electrical grid, everyone will be flocking to people like you for their survival! [frown]

The Bible says:

"Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime."[idea]

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Littleshark

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Reply with quote  #22 
help Sammy ACE ,,, find his post ...
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Littleshark

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Reply with quote  #23 
re-studying and absorbing Sharpshorts charts above is a GREAT weekend exercise ,,, IMO ...

Thanks for the teachings Sharpshorts !!!
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sharpshorts

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Reply with quote  #24 
Some more thoughts on reading charts and trading... Read em and trade em.jpg 
The red dots and white diagonal line high-light the down trend (price making LH's and LL's.
The indicator-to-price divergences suggest the possibility of immanent direction change.
The lime dots high-light the new up trend (price making HH's and HL's).

BTW - - Do you remember QuoteTracker software? The Medveds have a new software program available:
https://www.medvedtrader.com/www/frontend/production

Works the same way as before, is still free and has many additional features added.
It can use your current broker's data feed for 2 inter-day and/or daily charts plus it can
be run simultaneously with your current software without hogging CPU or memory resources.
 So if you have the screen real estate available, download it and check it out.
An example of one of my Medved Trader layouts.
MT daily+ tick.jpg

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Littleshark

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Reply with quote  #25 
nice SS ,,, I have been writing down your trading Systems "rules" ... your last chart added some more to my page ,,, especially concerning setting stops ... thanks again ...


ACE has been watching Lithium http://schrts.co/VSx6HJ sector because of decreasing supply and increasing world demand ... are you interested in that http://schrts.co/nHpDMN sector at all ??? ,,, if yes ,,, any stock picks from the sector ???

Conversely ,,, http://schrts.co/2v28wd TAN is basing ,,, may or might not start a new uptrend pattern ,,, am watching the http://schrts.co/WAeioz Sector for now ...
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