Divergence and stochastic

Beginner Questions
1

Hi Guy,

I was just wondering if you guy able to help me clear my confusion with drawing the line on bars chart and stochastic indicators to form a divergence below is the chart I have capture can you correct me if it correctly was drawn and is it divergence sign?

  • the line I have to connect from bars charts and stochastic indicators are they correctly done?
  • Since the LL from bar chart and HL from stochastic are not aligned would that consider divergence is incorrectly drawn?
  • If you look at stochastic I have connected the link between HL but there a slight bump in between would that consider incorrectly drawn for divergence.

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2

I think it’s correctly drawn, and it’s a tiny divergence sign.

When looking at divergence on stochastics, one generally wants something much clearer then that to suggest a potential trade.

I think so; yes (specifically, you’re quite right to use the ends of the wicks of candles, rather than the opens/closes as some people seem to).

I think it’s correct, but really not a very “clear sign”.

One has to think about different settings, for stochastics, too …

3

Agree with lexys. You’ve done it right but you’ve also demonstrated one of the problems with indicators like this. Strictly speaking, the divergence between the stochastic and price action is a potentially bullish signal. Of course however, price continued to fall. But then again, we already know price in a downward trend usually tends to continue to fall, but doesn’t always, so what help is an indicator?

I don’t like off-chart indicators at all, but if you must use additional data to make a trading decision (additional to price that is) it must be relevant to your decision and it must tell you something that price doesn’t.

4

The little pump between the two bottom in stochastic are fine, right?

5

In my opinion, such divergencies seen with an MACD of long-ish settings (e.g. 16-32-12 or 20-40-15) or a longish RSI (e.g. 20-25 periods) are far more helpful, overall, than stochastic divergences. Just my perspective.

6

THank Tommor, since there signal of divergence but price continue to fall and as you mention “you don’t like off-chart indicators” then what or tip and trick or skills do you use care to share as i want to learn as well.

7

I do use EMAs to confirm price trend, then to get in with the prevailing trend. So, for a long - price and 50 EMA above 200EMA, price rising over last 1, 3 and 6mths. I sometimes compare the strengths of trends by counting how many weekly bars are fully clear above the 200EMA. This is for long-term trend-following trades obviously but you could possibly scale down to shorter time-frames: I’m sure the EMA values and time gaps aren’t magical, its just that you need them to be well separated. After this, entry patterns aren’t really important but I do like to see some measure of pull-back.

I’m trying to learn fundamentals, but that seems a lot of work for little decision input so far.

8

I have a slight problem while using stochastic on MT4 with and Android phone…,d stochastic lign doesn’t correspond with d trend