I was looking into the Divergence Trading lesson and thought it was really interesting.
However, I wonder: Are you using one or more oscillators to determine the divergence pattern?
The reason I’m asking is that in the example enclosed (USDCHF 12.03.2012), you can see that higher highs are formed on the price chart. But the RSI and the Stochastics are sending mixed signals, i.e. higher highs on the RSI and lower highs on the Stochastics.
You would have used the Stochastics you’d have rightly determined that a bearish movement was on the way. But you’d have used the RSI, you’d have ignored the pattern and miss out the pips!
Good question, I have been wondering the same. I use both the RSI and Stoch and only if both give me a Divergence signal then I will use that as confirmation. Currently on AUDUSD D1 chart there is divergence for a sell signal on both the Stoch and RSI, I made 50pips from that signal… Not too shabby! :59:
Just a tip. you might know it, when plotting a trendline on the MT4 platform you can double click on that trendline, go to “Properties” then to “Parameter”, un-tick the ray field. By doing this you will be able to draw a trendline according to the size you want it to be.
There will often be a disagreement between various factors when looking for a setup. All one can do is collect the factors that one wants as part of the strategy, and then trade the setups that throws up and accept that sometimes the trade will not play out.
Nothing in trading is 100% reliable, in particular - in my opinion! - indicators.
Some traders who trade indicators successfully over the long term come up with a set of filters in an attempt (sometimes successful) to weed out the unsuccessful setups. For instance, the first ‘high’ on RSI that you cited in your example was not overbought - some traders look for two consecutive overbought highs before taking a Short, or the opposite for a Long. That would have saved an RSI trader’s bacon on this occasion. But that is just one example, these things are very discretionary and take time to evolve.
Basically, nothing is 100%, so in my opinion there is nothing one can do to rule out losses.
(And PPF yes, I agree with you lol but thought it worth adding this!)
