Divergence and stochastic

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.

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 …

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.

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

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.

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.

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.

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