Trading Strategies Using Technical Analysis
- Thread starter SwingKing
- Start date
- Tags trading strategies
Raunak Ji,
I was just seeing this chart of EUR/USD pair. Can we call this as LHHH divergence? Pls have a look @ the trendline drawn.
Link:http://img18.imageshack.us/img18/8977/eurusdg.png
I was just seeing this chart of EUR/USD pair. Can we call this as LHHH divergence? Pls have a look @ the trendline drawn.
Link:http://img18.imageshack.us/img18/8977/eurusdg.png
Thanks Raunak ji for the understanding. I have just attached the image by adding a blue arrow mark line. This blue line is in parallel to the divergence line drawn. Pls have a look @ the first rectangle (signifying price) and the third rectangle for Stoch.
Link: http://img413.imageshack.us/img413/3558/eurusd.jpg
Link: http://img413.imageshack.us/img413/3558/eurusd.jpg
Divergence on Daily Time Frame
Trading Positive Divergence on Daily Time Frame
Tools – Candlestick/Bar Chart, Stochastic Oscillator with standard settings (15,3). Overbought/Oversold conditions used as 80/20
Trade Setup – The basics of this setup is very easy to understand. If possible, monitors stocks which move in any kind of market. Typically these are high beta stocks. However, most of the stocks traded in Futures segment should do fine. What we are looking for is a stock making a new high whereas the stochastic highs forming a lower high. That means, stock makes a higher high and Indicator makes a Lower High. This is highlighted in red lines on price and Indicator. Now once the stock makes a new high, we need to see the indicator levels. If this indicator level forms a divergence and goes back into the neutral zone (that is below 80) then we short the stock, keeping the high as our stop loss. I usually target a 5-8% move. Remember, the divergences should occur over period of 1-2 Months.
Time Validity - I trade this pattern only on daily charts. However, it can work on any time frame. Please remember to adjust your targets accordingly. On daily time frame I use targets of 5-8%. On an hourly frame, this comes down to about 2-4%.
How to trade it - Refer to the chart below. Gujrat Ambuja made a high on 3/29/2010. It then rallied in April and made a new high on 29th April 2010. There was a distinct divergence visible on the charts. We now wait for our indicator to go into the neutral zone (that is, below 80). This happens on 30th April 2010. We get filled at 121.05 and keep a stop loss of 125.8. Over the next 10 sessions Gujrat Ambuja attains the target of 5-8%. The stock goes down much lower, but we maintain out targets and exit the trade.
Adding Positions - Divergence setups usually have very good risk to reward ratio. When trading these patterns with indicators, there is always a risk for the indicators to reverse and the price to move up. Hence, we need to take use of signals which are perfect. To do this, what we do is add one more lot once the stochastic indicator goes below 50. Usually indicator reversals for perfect signals rarely take place below 50. Hence we add position here. This is depicted by Blue horizontal lines.
Target - 5- 8%
STOPLOSS - Recent high of prices
Chart -
Trading Positive Divergence on Daily Time Frame
Tools – Candlestick/Bar Chart, Stochastic Oscillator with standard settings (15,3). Overbought/Oversold conditions used as 80/20
Trade Setup – The basics of this setup is very easy to understand. If possible, monitors stocks which move in any kind of market. Typically these are high beta stocks. However, most of the stocks traded in Futures segment should do fine. What we are looking for is a stock making a new high whereas the stochastic highs forming a lower high. That means, stock makes a higher high and Indicator makes a Lower High. This is highlighted in red lines on price and Indicator. Now once the stock makes a new high, we need to see the indicator levels. If this indicator level forms a divergence and goes back into the neutral zone (that is below 80) then we short the stock, keeping the high as our stop loss. I usually target a 5-8% move. Remember, the divergences should occur over period of 1-2 Months.
Time Validity - I trade this pattern only on daily charts. However, it can work on any time frame. Please remember to adjust your targets accordingly. On daily time frame I use targets of 5-8%. On an hourly frame, this comes down to about 2-4%.
How to trade it - Refer to the chart below. Gujrat Ambuja made a high on 3/29/2010. It then rallied in April and made a new high on 29th April 2010. There was a distinct divergence visible on the charts. We now wait for our indicator to go into the neutral zone (that is, below 80). This happens on 30th April 2010. We get filled at 121.05 and keep a stop loss of 125.8. Over the next 10 sessions Gujrat Ambuja attains the target of 5-8%. The stock goes down much lower, but we maintain out targets and exit the trade.
Adding Positions - Divergence setups usually have very good risk to reward ratio. When trading these patterns with indicators, there is always a risk for the indicators to reverse and the price to move up. Hence, we need to take use of signals which are perfect. To do this, what we do is add one more lot once the stochastic indicator goes below 50. Usually indicator reversals for perfect signals rarely take place below 50. Hence we add position here. This is depicted by Blue horizontal lines.
Target - 5- 8%
STOPLOSS - Recent high of prices
Chart -
Last edited:
Re: Divergence on Daily Time Frame
Raunak ji,
Thanks for posting this chart. You have touched my heart throbe topic of "Divergences". I always wanted to know this
. Now for the query sir -
The indicator's peak and price pivot's peak used are not vertically aligned @ 90 degrees, I mean they are not in a straight line. The indicator's peak is before the price pivot's peak.
If we have to consider the price pivot's peak and draw a vertical line downwards, it will not point to the indicator's peak, hence the question. I am sure you would understand that this is inline with the curiosity of how to draw divergence lines. Please guide.
Link: http://img822.imageshack.us/img822/4569/chartk.jpg
Raunak ji,
Thanks for posting this chart. You have touched my heart throbe topic of "Divergences". I always wanted to know this
. Now for the query sir - The indicator's peak and price pivot's peak used are not vertically aligned @ 90 degrees, I mean they are not in a straight line. The indicator's peak is before the price pivot's peak.
If we have to consider the price pivot's peak and draw a vertical line downwards, it will not point to the indicator's peak, hence the question. I am sure you would understand that this is inline with the curiosity of how to draw divergence lines. Please guide.
Link: http://img822.imageshack.us/img822/4569/chartk.jpg
Re: Divergence on Daily Time Frame
Laxsri good question. Keep it up.
Now look at the modified chart. Divergence is even stronger and spans over 2 months now. Good point to enter. There are plenty of similar patterns that should be playing out currently. Try and identify them and post it here. I'll confirm the same. I'll be posting how to use hidden divergence as well.
Tc
Raunak ji,
Thanks for posting this chart. You have touched my heart throbe topic of "Divergences". I always wanted to know this. Now for the query sir -
The indicator's peak and price pivot's peak used are not vertically aligned @ 90 degrees, I mean they are not in a straight line. The indicator's peak is before the price pivot's peak.
If we have to consider the price pivot's peak and draw a vertical line downwards, it will not point to the indicator's peak, hence the question. I am sure you would understand that this is inline with the curiosity of how to draw divergence lines. Please guide.
Link: http://img822.imageshack.us/img822/4569/chartk.jpg
Thanks for posting this chart. You have touched my heart throbe topic of "Divergences". I always wanted to know this
. Now for the query sir - The indicator's peak and price pivot's peak used are not vertically aligned @ 90 degrees, I mean they are not in a straight line. The indicator's peak is before the price pivot's peak.
If we have to consider the price pivot's peak and draw a vertical line downwards, it will not point to the indicator's peak, hence the question. I am sure you would understand that this is inline with the curiosity of how to draw divergence lines. Please guide.
Link: http://img822.imageshack.us/img822/4569/chartk.jpg
Laxsri good question. Keep it up.
Now look at the modified chart. Divergence is even stronger and spans over 2 months now. Good point to enter. There are plenty of similar patterns that should be playing out currently. Try and identify them and post it here. I'll confirm the same. I'll be posting how to use hidden divergence as well.
Tc
Last edited:
Re: Divergence on Daily Time Frame
laxsri, my 2 cents on this topic.. (specailly from the way i practice it)
- Price is the main source.. and indicators are only derivative of price. So start with price chart.
- I pay attention to price pivots (or swing points - these are points where price has changed the direction) on the chart.. So any analysis is based on price pivots first..
- to identify divergence, take any two price pivots, and take the oscillator values at that time, compare them and interpret them.
- If they are diverging, then u get a nice setup..Now go ahead and look at your precise entry rules to take a trade or wait for some more bars to develop
- And if you get Convergence.. it is another signal.. Not to anticipate reversal but confirmaion of trend continuation .. so trade that as well.
- while taking a trade on the basis of divergence, keep monitring that oscillator has not negated the prev reading.. (i.e. from oscillator making lower highs, it has made new higher high).
- I don't call 0.1 or 0.5 differnece in RSI/Stoch as a divergence.. Hence define your own limits to call it divergence.. (say atleast x% of difference). Similarly, the price peaks have to few bars away.. not just the 3rd or 4th bar.
Hope this helps..
happy trading
Raunak ji,
Thanks for posting this chart. You have touched my heart throbe topic of "Divergences". I always wanted to know this. Now for the query sir -
The indicator's peak and price pivot's peak used are not vertically aligned @ 90 degrees, I mean they are not in a straight line. The indicator's peak is before the price pivot's peak.
If we have to consider the price pivot's peak and draw a vertical line downwards, it will not point to the indicator's peak, hence the question. I am sure you would understand that this is inline with the curiosity of how to draw divergence lines. Please guide.
Link: http://img822.imageshack.us/img822/4569/chartk.jpg
Thanks for posting this chart. You have touched my heart throbe topic of "Divergences". I always wanted to know this
. Now for the query sir - The indicator's peak and price pivot's peak used are not vertically aligned @ 90 degrees, I mean they are not in a straight line. The indicator's peak is before the price pivot's peak.
If we have to consider the price pivot's peak and draw a vertical line downwards, it will not point to the indicator's peak, hence the question. I am sure you would understand that this is inline with the curiosity of how to draw divergence lines. Please guide.
Link: http://img822.imageshack.us/img822/4569/chartk.jpg
- Price is the main source.. and indicators are only derivative of price. So start with price chart.
- I pay attention to price pivots (or swing points - these are points where price has changed the direction) on the chart.. So any analysis is based on price pivots first..
- to identify divergence, take any two price pivots, and take the oscillator values at that time, compare them and interpret them.
- If they are diverging, then u get a nice setup..Now go ahead and look at your precise entry rules to take a trade or wait for some more bars to develop
- And if you get Convergence.. it is another signal.. Not to anticipate reversal but confirmaion of trend continuation .. so trade that as well.
- while taking a trade on the basis of divergence, keep monitring that oscillator has not negated the prev reading.. (i.e. from oscillator making lower highs, it has made new higher high).
- I don't call 0.1 or 0.5 differnece in RSI/Stoch as a divergence.. Hence define your own limits to call it divergence.. (say atleast x% of difference). Similarly, the price peaks have to few bars away.. not just the 3rd or 4th bar.
Hope this helps..
happy trading
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