Taking the
gold chart you posted first…I’m a little confused.
Ø
Weak divergence signals are a
warning that all is not well for a
reversal.
There is a strong buy
signal on your daily chart in Feb this year. This was the only buy
signal your chart shows. There are four sell signals…two were good, two
were not-so-good (although, yes, depending on your strategy you should at least
have been able to cover these with minimal, if any, loss).
So what would
a couple of MAs on a weekly or monthly chart of the gold price tell you about
the trend?? I think it might give you a little clue that the trend is UP, no??
So all I’m
saying is that, under these circumstances I would place more weight on the buy
signals than the sell. I have attached my own daily chart of the entire gold
bull market to date with buy signals and the sell signals. I think you’ll
agree that, in general, the buy signals are better than the sells? Do you need
any more charts from me before you will see that maybe my way of going
about things, although perhaps despicably “traditional”, certainly,
in my humble experience, does seem to “cut it in today’s market”.
OK, so I might
not know what is going on inside your head, but I can see what you’re
writing down – and I’m afraid that it seems rather blinkered to me.
You are trying to dismiss my method of trading as being incompatible with some
preconceived notion about what a “trending” strategy and what a “contrarian”
strategy might be. I personally don’t give a toss for the semantics or
for the philosophy. Of course, there’s more to my trading that just these
entry signals…but I’m sorry to disappoint you. It works.
>Another aspect of divergence that needs to be taken into account is
the actual strength of the signals.
Yes, I have tried this. I
have an indicator strength component that I can turn on or off. I usually leave
it off now as I found that I ignored too many important, but weak, signals that
way. Maybe I’ve coded it badly? I now use more fundamental analysis coupled
with other indicators in that repsect…I find the extra diversity that way
helps me retain perspective and reduces the risk of relying on just the one
indicator.
>All divergence signals eventually fail.
Are you implying that I
will simply just use a buy-and-hold on my own signals?!! I do also have an exit
strategy thanks.
> Divergence signals
may fail tomorrow, next week, next month, or in six months, but they *will*
eventually fail. Market trends cannot continue indefinitely, any more
than the ocean tide can continue to rise without abating.
Oh, that is a gem! Fantastic!
And it’s ME that’s using “tired old cliches” is it?!!!!
I did have a good chuckle when I read that one…
And anyway…a
significant number of the buy signals on my gold chart haven’t failed even
yet!! Maybe if we wait another 20 years they might? Or do you think I should have
a stop loss in place?
As for the
DJIA…
> The reason I
"handily leave out" periods other than the current one, is to avoid
any possible confusion borne out of a crowded chart.
Eh? Don’t
worry, I’m sure we can handle it!! How about a separate chart for just
the year 2003? You know, the one with the strong trend in it…
Look Jose, I’m not trying to compete with you here.
I own your product and I’m definitely not going to try to sell my own version.
Apart from the fact that I neither require the income and feel reluctant to
just hand it out (considering how much time and effort it took me), there are
probably bits of code in there that you could probably argue were “borrowed”
from your good self…I think not, but I’d rather avoid any possible
confrontation nonetheless.
So, for any
interested parties out there, please note – Jose’s
product is excellent…please buy it and don’t ask me for my code..
All I’m
trying to do is argue that I have a workeable and, to my mind at least, proven
way of trading divergences that DOES “cut it in today’s market”.
Sorry if it doesn’t gel with yours but, to use another tired old cliché,
isn’t the market big enough for both of us??
From:
Metastockusers@yahoogroups.com
[mailto:Metastockusers@yahoogroups.com]
On Behalf Of Jose Silva
Sent: Tuesday, April 26, 2005 2:51
AM
To: Metastockusers@yahoogroups.com
Subject: [Metastockusers]
Re: how to determine stoploss for divergence trading
Let's clear up a basic misconception:
Divergence strategies are *not* all created equal.
And not all application of divergence is
successful.
Some divergence strategies simply don't work..
For example:
---8<---------------
Osc:=MACD();
long:=Osc>Ref(Osc,-1) AND C<Ref(C,-1);
short:=Osc<Ref(Osc,-1) AND C>Ref(C,-1);
long-short
---8<---------------
This basic divergence between the MACD and price
has a very poor
success-to-failure signals ratio - too many false
signals.
This is the key to good divergence signals: the
success to failure
rate should be sufficiently high to allow some
confidence in the
possible trades.
> DJIA
> But what about the period to Feb '04.you
handily leave out that
> period with all the sell signals against the
strong up trend?
> What does your look like then?
Well, let's take a look at it, shall we?
http://www.metastocktools.com/MACDH/Dow2004.png
The reason I "handily leave out" periods
other than the current one,
is to avoid any possible confusion borne out of a
crowded chart.
> What about now? The last divergence signal
was a buy.You taking it??
> I'm not..I need more evidence before I go
long again in this market.
TecloGeo, in case you have not picked this up,
that last MACDH
Divergence signal on the Dow was a minor
one. It correctly signaled a
break or pause in the downtrend, followed by a
quick short-term rally.
Depending on your own trading style and exit
strategy, this may have
been a very good trade indeed.
All divergence signals eventually fail.
Market conditions change with time, and nothing is
set in stone.
Divergence signals may fail tomorrow, next week,
next month, or in six
months, but they *will* eventually fail.
Market trends cannot
continue indefinitely, any more than the ocean
tide can continue to
rise without abating.
Another aspect of divergence that needs to be
taken into account is
the actual strength of the signals.
Take a look at the poor relative strength (yellow
indicator) of the
divergence signals on the Gold chart for late last
year:
http://www.metastocktools.com/MACDH/Gold.png
Weak divergence signals are a warning that all is
not well for a
reversal.
> A "good trend indicator" might
simply be a couple of MA's.
My experience differs. The
"traditional" use of T/A based on 60's
myth just doesn't cut it in today's markets.
A successful trader
today needs sharp trading tools - divergence and
trend-following
simply do not mix.
> Picking MAJOR tops/bottoms is a mugs game.
I would say that repeating the same old tired T/A
cliches is a mug's
game. ;)
> because, with respect, you are only thinking
one-dimensionally.
With respect, I doubt very much that you have the
smallest inkling of
what is inside my head.
Basing trading strategies on the same old tired
application of
indicators (and looking at different time-frames
of the same
information), doesn't even begin to approach
lateral nor 2-dimensional
thinking.
One way of thinking outside the square in T/A, is
looking at the
factors and fundamental conditions that affect the
markets, and
applying this information wisely to help shape
timely entries and
exits.
But this is another subject. ;)
jose '-)
http://www.metastocktools.com/#contrarian
--- In Metastockusers@yahoogroups.com,
"TecloGeo" <teclogeo@xxxx>
wrote:
>
> That's why I say to mix the time frames..you
can get perfectly good
> divergence buy signals on the way up a
higher-order up trend.
> Corrections 'fizzle out', diverge and then
turn around just the same
> way as primary turning points.it's just a
question of what
> scale/time-frame you are referring to.
>
> Of course you will get good divergence
signals at the tops and
> bottoms. I've attached a chart of my own to
show that I too can come
> up with nice buy and sell signals for the
DJIA when it's stuck in a
> trading range. But what about
> the period to Feb '04.you handily leave out
that period with all the
> sell signals against the strong up trend?
What does your look like
> then? Probably better than mine.most likely
similar though. What
> about now? The last divergence signal was a
buy.You taking it?? I'm
> not..I need more evidence before I go long
again in this market.
>
> Trouble is, with mine and yours, and any
other divergence
> indicator/system out there that you will get
a whole shed load of
> terrible signals if you try and use it
against a strong trend. You
> might end up with a very timely signal at the
top or bottom, but how
> many times did it screw you on the way
there??
>
> A "good trend indicator" might
simply be a couple of MA's. I use a
> custom indicator based on simple pivot
support/resistance levels.
> They're both pretty simple tools. A few MAs
on a weekly chart of the
> DJIA would have told you that you were in a
strong up trend through
> most of 2003 (as did the predominant blue
colour on my chart), so
> ignore the sell signals. OK, so I missed the
top in Feb 2004 doing
> that.So what? The same indicators should have
told you (as the
> mixture of blue, grey and red did on my
chart) that the following
> period was a choppy/whipsaw kind of trend and
so you might have
> taken the few good trades there. Well done
both of us at that time.
>
> Picking MAJOR tops/bottoms is a mugs game.
Divergence is tradeable
> if you know how the market is behaving on a
bigger time frame.
>
> Now look at the 60 minute chart. I've
attached exactly the same
> expert as on the daily one, so I'm not
cheating. See the two great
> sell signals at the end of March/start
April?? Notice how they
> occurred when the trend colour on the DAILY
chart had a nice bias
> towards being RED (i.e. down). Notice how
crap most of the buy
> signals are??!!!
>
> I would say that mixing trending and
contrarian strategies worked
> pretty well there, wouldn't you? It's not a
fluke. I can send more
> examples if you really want me to. It might
not make intuitive sense
> to you but that's because, with respect, you
are only thinking
> one-dimensionally.
>
> _____
>
> From: Metastockusers@yahoogroups.com
[mailto:
> Metastockusers@yahoogroups.com]
> On Behalf Of Jose
Silva
> Sent: Monday, April 25, 2005 3:26 PM
> To: Metastockusers@yahoogroups.com
> Subject: [Metastockusers]
Re: how to determine stoploss for
> divergence trading
>
> "Regarding divergence trading, first and
foremost
> you need to have a good trend
indicator."
>
> A good trend indicator... easier said than
done. ;)
> My experience is that divergence and any form
of trend-following/
> filtering don't mix too well.
>
> Take a look at these divergence signals:
>
> http://www.metastocktools.com/#contrarian
>
> ... and show me a trend filter that would not
take out those great
> top & bottom divergence signals.
>
> By definition, a trend indicator is a
crowd-following lagging
> filter, even within shorter
time-frames. In contrast, divergence
> signals are contrarian (anti-trend).
The two strategies hardly mix
> at all.
>
> A better filter for divergence signals would
be something based on
> non-lagging price patterns. Kevin's
definition of a failed
> divergence signal fits well with
pattern-based filters.
>
>
> jose '-)
> http://www.metastocktools.com
>
>
>
> --- In Metastockusers@yahoogroups.com,
"TecloGeo" <teclogeo@xxxx>
> wrote:
> Regarding divergence trading, first and
foremost you need to have a
> good trend indicator. The downfall of using
divergences is that you
> try to "pick the top" too early.for
example, a strong trend will
> have your divergence sell indicator firing
pretty much all the way
> from the bottom to the top.
> Not much use.but if you can identify the
trend well enough then take
> divergence signals in the corrections you
might be on to something.
>
> Think about using different time frames..for
example, identifying the
> longer term trend on a daily/60 minute chart
and then taking
> buy/sell divergence signals on a shorter-term
chart (e.g. 12-minute)
> in the direction of the longer-term trend-.
Use a delayed entry
> signal above the last resistance pivot for an
buy entry to try to
> ensure the price actually starts moving in
your direction after the
> signal and then put your stop, as Kevin says,
under
> the last pivot support - i.e. the low where
the divergence buy
> signal was given. The risk is therefore the
difference in the pivot
> levels, plus whatever 'room' you want to
give.
>
> I would recommend Clayburg's book "Four
Steps to Trading Success" as
> a good reference on this style of trading.
I've found his methods to
> work quite well in real-life trading. He
covers his own style of
> divergence-type signals, entries, exits and a
method for determining
> trend (which I've never personally used, but
is interesting
> nonetheless).
>
> _____
>
> From: Metastockusers@yahoogroups.com
[mailto:
> Metastockusers@yahoogroups.com]
> On Behalf Of Kevin Barry
> Sent: Monday, April 25, 2005 12:12 PM
> To: Metastockusers@yahoogroups.com
> Subject: Re: [Metastockusers]
how to determine stoploss for
> divergence trading
>
> Doc,
>
> I would suggest that the logical place for
the initial stop loss is
> one tick below the low of the price bar (for
a long trade) at which
> the divergence occurred. By definition, if
that low is broken, the
> divergence signal has failed and you should
be out of the trade
> immediately. Once the trade moves in your
favour, you can then
> introduce your trailing stop or whatever.
>
> Regards,
> Kevin
>
> At 17:12 24/04/2005 -0500, you wrote:
>
> hi all,
> as we kow divergence trading is in a
contrarian nature. so we cannot
> use trailing or other kind of stoploss when
we are taking the
> position.
>
> are there any divergence traders around or
anybody who has any idea
> o this subject?
>
> thanks
>
> --
> Dr. Torque
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