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A friend suggested I focus on divergences more when trading the
commodity markets. With that thought in mind, I examined the
following markets using daily charts and RSI.
Cocoa and Cotten gave excellent divergence buy signals on the lows of
their recent ranges. Bonds gave an excellent divergence sell signal
in the 114 area.
Question: Divergence seems as though it would be a difficult
indicator to backtest. The principal reason being that one is not
sure of a divergence exitsts until it is confirmed by price action in
the opposite direction.
Is it possible to program such a system? Does anyone on the list
trade divergence? If so, how do you use it and what do you use any
additional indicators with a divergence signal.
Is it even necessary to trade divergence for example, a market that
is rallying will almost always form a divergence if a closing
reversal occurs at the top of the price action. Is it better then
just to trade a reversal signal and ignore divergence?
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