Divergence Presentation
Transcript of Divergence Presentation
-
7/31/2019 Divergence Presentation
1/29
-
7/31/2019 Divergence Presentation
2/29
Price
Momentum
Volatility
Volume
-
7/31/2019 Divergence Presentation
3/29
Tops and Bottoms
Channels
Lower Lows and Higher Highs
Key Price Levels
-
7/31/2019 Divergence Presentation
4/29
For all price patterns, a key component in
determining the strength of the divergence isbased on the significance of the price pattern.
Significance is determined by the number ofcandles to the left and the number of the candlesto the right of the price pivot
The more significance the price pivot, thestronger the divergence setup
Filtering divergence setups by strength willreduce the number of potential setups butincrease the probability of a successful trade
-
7/31/2019 Divergence Presentation
5/29
-
7/31/2019 Divergence Presentation
6/29
The significance of the price pivot is determined
by the number of candles to the left and right.The minimum number of candles required is 2 tocreate peakiness. Only significant price pivotsshould be considered for divergence setups.
-
7/31/2019 Divergence Presentation
7/29
-
7/31/2019 Divergence Presentation
8/29
Instead of using support and resistance as a line,it is more useful to define S&R in terms of a rangeto identify divergence setups. The wicks that arecommon to both price pivots make identification
of the price range simple.
-
7/31/2019 Divergence Presentation
9/29
Once the channel has been defined by twosignificant swing highs, it sets up four shortnegative divergent trades
-
7/31/2019 Divergence Presentation
10/29
Lower lows and higher highs can be determinedby fibonacci expansions and extensions. Critical
fibonacci expansions are 112.7%, 127.2% and161.8% of the impulse wave.
A
B
The wave isbetween points Aand B.
Look for marketreversal at 112.7,127.2 and 161.8of the impulse
-
7/31/2019 Divergence Presentation
11/29
Range charts are often easier to identify thesignificant swing lows and swing highs for thefibonacci expansion calculation. Note thatfibonacci expansions ignore the retracement.
A
B
-
7/31/2019 Divergence Presentation
12/29
Fibonacci extensions are also very common,especially in markets in which have classicallyretraced prior to the final impulse wave. Themost common fibonacci extensions are 50%,61.8%, 76.4% , with the most common at the100% extension.
A
B
Retrace
-
7/31/2019 Divergence Presentation
13/29
Market reversals often occur at thefollowing key price levels:
Pivot points, Previous day high and low, longterm support and resistance
Often the market reverses at the opening
of new trading sessions At this time, we will ignore these criteria
-
7/31/2019 Divergence Presentation
14/29
-
7/31/2019 Divergence Presentation
15/29
-
7/31/2019 Divergence Presentation
16/29
-
7/31/2019 Divergence Presentation
17/29
Zero lag is defined by calculating the EMA andthen the EMA of that EMA. If needed, I can
provide the NT code.
-
7/31/2019 Divergence Presentation
18/29
The Zero lag MACD identifies crossoversseveral bars earlier than the classic MACD and
also denominates divergence more obviously
-
7/31/2019 Divergence Presentation
19/29
-
7/31/2019 Divergence Presentation
20/29
The strength of the divergence is indicated in the MACD.
Ideally, the second wave retraces no more than 50% of thefirst wave
Traditionally, classic MACD divergence is identified withMACD peaks. Always identify divergence in a peak to peakcomparison.
Ensure line of sight (i.e., connect peak to peak without anyobstructions)
Traditionally, zero line MACD crossings were the bestconfirmation of divergence; however, classic MACD gives
minimum examples of this. ZL MACD gives many more zeroline crossings to improve divergence strength. In general,the closer to zero, the higher the possibility of a successfuldivergent trade.
-
7/31/2019 Divergence Presentation
21/29
Stochastics work well on lower time frames toconfirm the divergence established on higher
time frames.
-
7/31/2019 Divergence Presentation
22/29
The stop is the same for both the aggressiveand conservative entry. The entry price willdepend on the experience level of the traderin recognizing the short term momentumindication and long term setup
-
7/31/2019 Divergence Presentation
23/29
Price
Momentum
Volatility
Volume
-
7/31/2019 Divergence Presentation
24/29
-
7/31/2019 Divergence Presentation
25/29
The entry is confirmed with the bollingerband, needing to be at or exceeding the bandedge. Target 1 is the simple moving average.Target 2 is the opposing band edge.
-
7/31/2019 Divergence Presentation
26/29
Price
Momentum
Volatility
Volume
-
7/31/2019 Divergence Presentation
27/29
The most useful indication of market
divergence is the one componentunavailable to forex trader: volume.
From a psychological perspective,divergence indicates market exhaustion.
From a volume perspective, a diminishedvolume at a higher/lower or equal price is a
leading indicator for market reversal Tick volume or broker volume may be
worthy of future consideration
-
7/31/2019 Divergence Presentation
28/29
-
7/31/2019 Divergence Presentation
29/29
Price: set stops 10 pips above/below
previous swing high or low
Momentum: Stochastics recycle andcross at 80/20 levels
Aggressive entry at LT zig zag formation
Conservative entry at YTR MA Channelbreak