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Bob,
I have tested a couple of the divergence addons for MS. For political reasons, I'm not going to say specifically what I tested, and it really doesn't matter. What I found was about the same as I've found with the other thousand things I've tested, and when I say a thousand, literally it's well over that number.
Basically, what all systems boil down to is the kind of trend they work best in. I have found many systems, indicators and strategies that work in strongly trending markets. Why do so many things work in a strongly trending market? Because the probability of success is much higher when 60% to 80% of all stocks are rising. Even random picking matches market returns so they'll be a lot of winning trades for everyone, no matter what they are using including phases of the moon.
Of course this is logical, but you would be surprised at how many "traders" don't get it. The last time this was evident was in the late 90"s when the Nasdaq was on a major up trend. A lot of guys jumped into trading and made excellent money. They thought they had great systems. In 2000 when the techs found the other side of the distribution curve, those very successful traders kept right on trading with their great systems, and almost all of them wound up giving back more than they made.
I have never tested a system that works well in non-trending markets. If systems worked well in non-trending markets you would read stories about traders who compounded up their capital account until they were nipping on Warren Buffet's butt. Instead what you read about, or hear about, are traders who compounded up their accounts during very brief periods of time. They only talk about how big their wins were and where the account maxed out. You don't hear what happened after. Why? Because the stories of giving back the big gains just don't sell books, magazines, systems or seminars.
Even the traders who hit big numbers during strong uptrends tend to be the outlier data. The vast majority of independent traders have good years, but don't do any better than good mutual funds or any type of money manager. There are lots of guys that trade using systems based on fundamentals and quantitative data that do better than 95% of those who use TA. You can find a lot of them on trading forums run by Motley Fool and others. I have seen their portfolio's and the average annual returns, and some of them are excellent overall. I've tested a lot of systems based strictly on FA and QA and some them perform great across long periods of time.
The really successful traders that hit the big numbers are institutional traders who make small profits on a large number of trades. What makes them money is the huge leverage they are able to use. But as you've seen, leverage can destroy a portfolio and everyone in it.
I know a few small traders who grind out a living making a little money on a large number of traders. I spent a couple of years as a grinder. In my case, I didn't like it. Some people may like it, but it sure wasn't a lot of fun in my opinion. I also felt it just didn't produce enough profit over the long run to make it worth doing.
I went back to trading on a longer time frame now, and as I said nothing really works well in choppy, sideways or trendless markets so I don't trade then. I may hold a variety of securities during that time. However, there's a strategy other than trading behind that. If I think the market is going to be trendless, or unproductive, for a long time, I create a portfolio for yield. I'll use TA to help me buy what I need at a good price, but the TA isn't picking the stocks, I am. I did that in 2001 through the beginning of 2004, and I'm doing it again. I made some cap gains on equities at the end of 2002 and part of 2003 using margin, but most of my trades were in bonds, which created both cap gains and yield.
When the market is in a trend, I'll compare the profits I can make from pure equity trading with the yield plus cap gain on other things I'm holding like oil trusts, preferreds, bonds, etc. If I think there is more to be made trading equities in a specific trend, I'll trade from a prescreened list of stocks that have a high probability of going up based on large amounts of historical data on the prescreened list. I'll use TA to cull the list. Sometimes I'm right about making more on pure cap gains, and sometimes I'm not. From early 2004 to the end of 2007, I didn't own any yield securities. I got back into bonds in early 2008 and then other yield equities in the 4th quarter of 08 through now.
This style of trading is not for everyone and I certainly don't recommend it to most people. If I had found some combination of indicators, divergence tools, chart patterns, Gann charts or whatever that actually worked in a trendless market, I would use it. I don't care what it costs or how much time it takes. This is my business, and I'll invest the time and money it takes to make it successful. I buy nearly every trading book I can find both new and old. I've bought all kinds of software, and tested everything I could get my hands on. I read academic articles and get test results from other professional sources I trust. I guess I just haven't looked in the right place for the magic.
Sorry for the lengthy explanation on divergence. I've found a couple of divergence products that work well in strong trending markets. So do moving averages. A couple of the divergence formulas worked fairly well as filters. If you've got a large enough trading account that you don't care what things cost, then why not buy several of the addons and test them yourself. I always suggest people test everything themselves. Trading is about probability. It's knowing when to place a bet so the odds of winning are on your side. Everything you can learn about what works and when is valuable information. Learn as much about the probability of a winning bet in every kind of situation as you possibly can.
I started trading part time in the 60's. This is the hardest market I've been in. It has taken months to move into a yield portfolio, reposition it as the market has changed and balance the probable cap gains potential against yield. This year I expect to make between 20% to 30% depending on whether the market pulls back May through Sept and then hits another typical uptrend from October to Feb. But who knows what shoe is going to drop next. I sure don't. Divergence isn't going to help me make even 1% of what I earn this year. It's all hard work, studying everything about what I'm buying and of course, the most important variable of all, luck! If a new bull market starts up sometime shortly, I'll make my 30% without as much toil and sweat, but indicators will have very little to do with it, converging or diverging.
Super
--- In equismetastock@xxxxxxxxxxxxxxx, Bob Waits <bobwaits2@xxx> wrote:
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> Thank you very much. Talking about divergence formulas, has anyone on this forum tried some of the divergence add ons available. What has been the experience?
> Cheers.
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> --- On Mon, 4/27/09, pumrysh <no_reply@xxxxxxxxxxxxxxx> wrote:
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> From: pumrysh <no_reply@xxxxxxxxxxxxxxx>
> Subject: [EquisMetaStock Group] Re: Meta Stock Formula
> To: equismetastock@xxxxxxxxxxxxxxx
> Date: Monday, April 27, 2009, 4:41 AM
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> Bob,
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> The full formula can be found here:
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> http://www.guppytra ders.com/ Metastock% 20Formulas/ latest_formulas. htm
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> Preston
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> --- In equismetastock@ yahoogroups. com, Bob Waits <bobwaits2@ ..> wrote:
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> > I came across this exploration formula but it is giving me an error message "End of function ')' expected."
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> > md := MACD(); mdhist := md - Mov(md,9,E); Correl(((Sum( Cum(1)*( mdhist ),100))-(Sum( Cum(1),100) * Sum(( mdhist ),100)/
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> > Can someone help?
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> > Thanks.
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