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Tom Bierovic studied divergences extensively a few year back. He found
divergences to be no better than random at predicting price direction. I
think, but am not as sure, that Larry Williams found the same thing in his
research, done before or about the same time as Tom's, if I am recalling
correctly.
For my part, have found divergences worthless over the last decade+.
Am not saying that the following is the case on your part, Mike, but
sometimes each of us see things in charts or too-small samples of charts
that do not cover all kinds of markets - that are only what we are looking
for - we each tend to not see things that disagree. E.g., I was recently on
the hot trail of shortable patterns that I was sure that I saw before during
and after earnings projections/announcements, following 52 week highs - that
no one else seemed to have seen....for a couple months...only to discover
that the patterns were too unreliable, were trumped by other events & market
conditions too often to be tradable.
So, be careful...Tom Bierovic does good research.
Vince Heiker
Flower Mound, Texas
-----Original Message-----
From: mike ball [mailto:thinkpad600e@xxxxxxxxx]
Sent: Sunday, November 23, 2003 8:39 PM
To: DH; Omega List
Subject: Re: My Take on Diversion (edit: divergence)
on Divergence and Reverse Divergence...
There are many metrics within which to consider when
trading this setup in real time. Yes, as many have
pointed out it is not an easy task to recognize
validity of these.
However, to those that have simply dismissed them as
useless, I most definitely can raise my hand as one
that is in opposition to your opinion.
I don't discount the validity of your research
methodology as I have no way of discerning the
appropriateness or usefulness of the
"number-crunching" that I'm sure you've done.
The realizations that trading the markets intraday
as I'm sure most on this list will agree is that No
ONE indicator alone seems to get the job done.
However, a "very good" indicator with a few "other"
parameters defined by filters or secondary indicators
validating the primary can be a trading weapon of
considerable validity and repetitive usefulness.
A very powerful setup that I use on a daily basis and
is quite pronoucned at least a couple of times
throughout the trading day is the concept of reverse
divergence in a HRTBC(Higher Reference Tick Bar Chart)
Most precisely validated by the dynamics that are
occuring in lowest reference Tick bar chart I view to
take my entries from.(100TB)
Whereas to say that a trader may be considering the
200TB chart as the HRTBC and waiting for a resumption
in trend(up), finds that price nose dives
creating the onset of what looks to be the initial
forming of Rev. Dvg. in your Stoch/RSI indicator(s)
accompanying "Filters"; High Tick Vol., potential
piercing the 3rd std. dev. on the BBs with acute force
directly into a "significant" 2B and/or Trendline,
price congestion level take your pick, only to be met
with instantenouse reversal bars
or extremely evident "market hesistation" never
allowing the primary moving average of the HRTBC to
be violated, could perhaps deduce that a resumption in
trend could likely be in the making.
Codifying a Divergence Engine correctly or
appropriately within a given market may be something
that is of on-going neccessity and perhaps not worth
the maintainence costs involved if the given market
from which the attempts at the recognition of
divergences are ultimately producing trades that are
statistically ending in very little derived point
value. A.K.A. the trade isn't giving you enough Bang
for your Buck.
However, what I find as quite useful in my daily
trials and tribulations at trading this particular
setup of mine is simply this.
If in fact the reverse divergence signals that I'm
playing off of fails. Then what I do expect from
market and happens quite often enough to extract the
realization of profits is that the market WILL go the
other way, once the divergence is "taken out"
Some might say that an indicator that is Overbought or
Oversold stays Overbought or Oversold. Yes, that is
true is some cases, and in those that it is Not...
Well there you have my setup.
cheers-
mike ball
--- DH <catapult@xxxxxxxxxxxxxxxxxx> wrote:
> > However the
> > one type of divergence that seems to have some
> predictive value is
> > intermarket divergences.
> <snip>
> > I found it was much more difficult to implement
> > real time than in hindsight
>
> Bingo! As Mark correctly points out, even in John's
> cherry-picked
> charts, he conveniently ignores several turns of the
> McOsc and draws his
> trend lines on the "real" turns. The eye is very
> good at recognizing
> these patterns after the fact (too late to trade)
> but we don't have that
> luxury when trading the right-hand edge of the
> chart. There are too many
> fake-outs realtime to make it a very useful tool.
>
> And yeah, been there, done that, lost money, got the
> "I survived"
> t-shirt, moved on.
>
> "If it works, code it and prove it."
> (Paraphrase of the philosophy of my friend and my
> first mentor, Mark
> Brown. I forgive him for accusing me a being a
> closet astrologer. :-)
>
> --
> Dennis
>
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