MACD Divergence

asha99 · #1 25th March 2008, 06:09 PM

Does anyone trade divergence on Forex? I have been struggling with this,
just how do you trade the divergence pattern?
I spot so many, but am confused how to trade, as when to take the trade.
when it works it is worth hundreds of pips, but also have many losing trades

gkpc · #2 24th April 2008, 09:03 AM

I do not trade Forex, but the following found on the Net may be of some use :

MACD Histogram Divergence
This explorer looks for stocks exhibiting extreme divergence from the MACD Histogram. In his book "Trading for a Living", Alexander Elder argues that divergence from the MACD Histogram gives the strongest signals in the whole of technical analysis.

ColA:

md := MACD();

mdhist := md - Mov(md,9,E);

Correl(((Sum(Cum(1)*( mdhist ),100))-(Sum(Cum(1),100)*

Sum(( mdhist ),100)/100))/((Sum(Power(Cum(1),2),100))-

(Power(Sum(Cum(1),100),2)/100)),((Sum(Cum(1)*C,100))-(Sum(Cum(1),100)*

Sum(C,100)/100))/((Sum(Power(Cum(1),2),100))-(Power(Sum(Cum(1),100),2)/100)

),12,0)

Filter Column:

colA and colA <-0.8

The above formula can also be combined with a volatility buy signal and a volume signal. The following addition is then made.

ColB: The volatility buy signal

H > Ref(C,-1) + 1.8 * Ref( ATR(10),-1)

ColC: Volume 10% above the average of the previous 10 days

V > 1.1 * Ref( Mov(V,10,E),-1)

Filter Column:

colA AND colB AND colC AND colA <-0.80

Initial tests with this system have been encouraging.