Trading Divergence

[eunza]

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

 

[professor_frink]

Re: Reversal Swing Convergence Divergence

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

Looking forward to seeing a bit more

 

[eunza]

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.

 

[tech/a]

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.

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)

RSI (lower chart) The shading we are looking for is the dark blue. Note the trend of the blue sectioned compared with the trend on the Green.
The blue section rose consistently on its trend channel and when it faltered below the support you can see the resulting SP drop in mid june
On the green section we've just recently bounced off the support line for the 3rd time - and the current direction is a strong uptrend. (stronger than the last) It has also spiked up to the high of the first bounce.

Volume - Currently this is probably under the radar of most systems so we don't see much Volume increase yet- however due to the low risk of downside (that is the RCD confirmation) these plays are good to enter early.

So in overview - Strong RCD level, Strong RSI, minimal current volume and early signs of SP breakout.

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.

 

[professor_frink]

Re: Reversal Swing Convergence Divergence

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.

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

 

[overit]

Re: Reversal Swing Convergence Divergence

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.

 

[eunza]

Re: Reversal Swing Convergence Divergence

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.

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

 

[It's Snake Pliskin]

Re: Reversal Swing Convergence Divergence

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

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?

 

[BBand]

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)

 

[professor_frink]

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

 

[tech/a]

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.

 

[nunthewiser]

Re: Reversal Swing Convergence Divergence

Nice to have you back tech/a

 

[tech/a]

Re: Reversal Swing Convergence Divergence

Nice to have you back tech/a

Ive been somewhere?

 

[nunthewiser]

Re: Reversal Swing Convergence Divergence

Ive been somewhere?

Yes.


your Absense has been noticeable

 

[wayneL]

Re: Reversal Swing Convergence Divergence

Yes.


your Absense has been noticeable

Less arguments?

:

 

[tech/a]

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?

 

[tech/a]

Re: Reversal Swing Convergence Divergence

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.

 

[tech/a]

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.

 

[nunthewiser]

Re: Reversal Swing Convergence Divergence

Less arguments?

:

yeah maybe BUT

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

 

[wayneL]

Re: Reversal Swing Convergence Divergence

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