How to trade with an oscillator
- Thread starter Smart_trade
- Start date
I have observed that CCI gives the signal first among these momentum indicators.
It is generally observed that once the -ve divergence starts in momentum indicators, it keeps on making. Means higher bottoms keeps on making in momentum indicator & lower tops on price chart. We don't know when that divergence will get completed. I trade the divergence, once it breaks the price trendline joining the tops which is said to be the valid breakout & trade is intiated.
My Query is, is this the right method of trading the divergence or we will have to wait till it starts making +ve divengence & then intiate trade?
It is generally observed that once the -ve divergence starts in momentum indicators, it keeps on making. Means higher bottoms keeps on making in momentum indicator & lower tops on price chart. We don't know when that divergence will get completed. I trade the divergence, once it breaks the price trendline joining the tops which is said to be the valid breakout & trade is intiated.
My Query is, is this the right method of trading the divergence or we will have to wait till it starts making +ve divengence & then intiate trade?
Rangarajan, it is the wrong gauge in what is most popular. After all, it is popular to be a loosing trader.
Reliability is a bit of a different story. I use the stochastics as a small part of my methodology. I chose it through a gathering of ideas through a venue such as this one, but most of all, through personal observance.
Depended on who you talk to, they will give the reasons why they feel their oscillator is the best. Mangup just told you why he thinks the RSI is the best. Someone else will tell you the MACD is the best, others will say the Williams, and I will tell you stochastics.
Use all this as a tool and for gathering all the information you are going to need, and then apply it on your demo account and do your homework. Eventually, you develop your bias as to what is best for you.
Are there going to be conflicting signals between oscillators? Absolutely! There always is. Again, this is why you have to observe in live action the personality of each, then determine for yourself what is best.
Reliability is a bit of a different story. I use the stochastics as a small part of my methodology. I chose it through a gathering of ideas through a venue such as this one, but most of all, through personal observance.
Depended on who you talk to, they will give the reasons why they feel their oscillator is the best. Mangup just told you why he thinks the RSI is the best. Someone else will tell you the MACD is the best, others will say the Williams, and I will tell you stochastics.
Use all this as a tool and for gathering all the information you are going to need, and then apply it on your demo account and do your homework. Eventually, you develop your bias as to what is best for you.
Are there going to be conflicting signals between oscillators? Absolutely! There always is. Again, this is why you have to observe in live action the personality of each, then determine for yourself what is best.
ST, would you care to comment on this post in the Bollingerworm thread ?
It is very difficult to say which are the better/best settings. Sometimes this works better, sometimes that works better. In case of sharp movements within 10-15 min, 3,5,3 setting will nail it better, in other cases the 3,8,4 will give surer results.
Consider the chart below with 3 stochastic divergence periods marked as A, B and C.
If you are using 3,5,3 then you would hit stoploss with A, get very nervous with B (stochs making lower trough but not the price) and hit the jackpot with C.
If you are using 8,3, 4 then A is no trade, B is jackpot and maybe C is a missed trade.
If you combine the divergence with the worm, then maybe you get 3 correct trades.
T4j, 15 period stochs will mean that the first line will formed after 75 min.
Consider the chart below with 3 stochastic divergence periods marked as A, B and C.
If you are using 3,5,3 then you would hit stoploss with A, get very nervous with B (stochs making lower trough but not the price) and hit the jackpot with C.
If you are using 8,3, 4 then A is no trade, B is jackpot and maybe C is a missed trade.
If you combine the divergence with the worm, then maybe you get 3 correct trades.
T4j, 15 period stochs will mean that the first line will formed after 75 min.
There is nothing like best setting in oscillators. We have to find out a setting which catches some good trades but remember that any setting however good, will catch some good trades, miss some trades and also catch some bad trades. The moment we try to look for ideal parameters, the indicator looses its ruggedness and we get into the danger of over optimisation.
Also a setting which works great in one set of data sample will not work that great in the other sample, but some other setting will work the best.
This is the reason that I use oscillators as a secondary and my first dependence is on trends, the larger trends and the smaller trends within those larger trends ( interplay of various trends in a given timeframe of say 5 min ) which when supported by oscillators give me few very good trades. when the oscillator and price action or trends are not in confirmation, I wait for them to fall in phase .
I use RSI also for profit booking and divergence ...I find 14 period RSI works great for me...someone will say 10 works best for him, someone will say 7.....all will catch a mix of good trades, bad trades and miss some trades. as long as I get enough trades based on oscillator and price action, I am happy trading them ....
Smart_trade
Also a setting which works great in one set of data sample will not work that great in the other sample, but some other setting will work the best.
This is the reason that I use oscillators as a secondary and my first dependence is on trends, the larger trends and the smaller trends within those larger trends ( interplay of various trends in a given timeframe of say 5 min ) which when supported by oscillators give me few very good trades. when the oscillator and price action or trends are not in confirmation, I wait for them to fall in phase .
I use RSI also for profit booking and divergence ...I find 14 period RSI works great for me...someone will say 10 works best for him, someone will say 7.....all will catch a mix of good trades, bad trades and miss some trades. as long as I get enough trades based on oscillator and price action, I am happy trading them ....
Smart_trade
mangup,
When we talk about negative divergence in an upmove that means the price is making higher tops but oscillator is making lower tops.....the bottoms we compare when we see positive divergence at the end of a down move.
My experience is the weak trends reverse on one divergence, a little more strong trends reverse on two divergences and very strong trends reverce on three divergences ( that is why they say it needs 3 bullets to kill a trend ) . Very rarely I have come across a trend which continues beyond three divergences.....
Breaking of a trendline or a pivot low is a good indication that the trend is reversing.....but remember that the trend can resume again and so be ready with the stops.....once a pivot low is cracked in even small timeframe such as 5 min we know that we have started a minor downtrend....which we hope will continue and possibly convert into a bigger downtrend....but if it does not and market decides to reverse, we have our stops sitting at the pivot high..... but you are right in your approach.
Smart_trade
When we talk about negative divergence in an upmove that means the price is making higher tops but oscillator is making lower tops.....the bottoms we compare when we see positive divergence at the end of a down move.
My experience is the weak trends reverse on one divergence, a little more strong trends reverse on two divergences and very strong trends reverce on three divergences ( that is why they say it needs 3 bullets to kill a trend ) . Very rarely I have come across a trend which continues beyond three divergences.....
Breaking of a trendline or a pivot low is a good indication that the trend is reversing.....but remember that the trend can resume again and so be ready with the stops.....once a pivot low is cracked in even small timeframe such as 5 min we know that we have started a minor downtrend....which we hope will continue and possibly convert into a bigger downtrend....but if it does not and market decides to reverse, we have our stops sitting at the pivot high..... but you are right in your approach.
Smart_trade
This shows what ST has been talking about. That divergence was small. The stochastics was not that OB. Yet, look at the huge drop. That happened in the middle of what was still a huge downtrend.
Look at the bottom. There is a double divergence. The market is going north, finally, but still has not reached the pinnacle of the point it had the previous divergence.
Through observation, anyone could see this is not an exception to the rule. This is just common stuff.
Yes Paul, I do agree with you that consistancy in setting of the oscillators is more important than the setting itself. Too frequent changes and be sure that you will have most of the loosers from various settings .....
I started trading more than a decade back with RSI ,MACD as my only tools ( and I thought I have discovered a holy grail...
) and I used to optimise the RSI settings every week to get the best possible setting. But to my utter surprise, one setting which was the best this week, some other setting vastly different will be the best next week....and something else totally different the week after that. I came to the point of optimising every day and then I realised that it is a wasteful excercise I am doing. Then I started running optimisation in the range of parameters every 3 months and as long as my parameters are in above 50 % of the optimisation results, I find it ok.
But markets change, volatility changes, so one can check whether the settings are catching the good number of trades or no harm in changing the settings but keep them constant for a reasonable period of 2-3 months or so.
Smart_trade
I started trading more than a decade back with RSI ,MACD as my only tools ( and I thought I have discovered a holy grail...
) and I used to optimise the RSI settings every week to get the best possible setting. But to my utter surprise, one setting which was the best this week, some other setting vastly different will be the best next week....and something else totally different the week after that. I came to the point of optimising every day and then I realised that it is a wasteful excercise I am doing. Then I started running optimisation in the range of parameters every 3 months and as long as my parameters are in above 50 % of the optimisation results, I find it ok.But markets change, volatility changes, so one can check whether the settings are catching the good number of trades or no harm in changing the settings but keep them constant for a reasonable period of 2-3 months or so.
Smart_trade
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