I had a question. I read what this school had to offer on Divergence and I couldn’t find the right “settings” for my stochastic oscillator. I currently use “14, 3, 3” on a daily chart, but as anyone with a little experience with this indicator can guess, it moves a lot and could give false divergence signals. I would very much like to ask people who are reading this, What “settings” do you use on your oscillator? Be it for divergence or in General.
There’s no “right” setting. It’s really up to you.
But you should know what the settings actually mean. So you know whether you should change them.
For example, regarding the “14, 3, 3” setting, the “14” is the most recent close, the highest high over the last 14 periods and the lowest low over the last 14 periods, the “3” is the 3-day simple moving average of the “14”, and the last “3” is a moving average of the second “3”. Meaning a moving average of the moving average.
So if you’re not comfortable with those parameters, you can tweak them but you should first try to understand what the indicator is trying to calculate.
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Good advice from ForexGump.
I was going to add that most traders will use RSI or MACD to identify divergence, not stochastic: though you can use stochastics, it seems most people think its not the best choice.
Playing around with the settings might not do much more than increase/reduce the frequency of signals within a given time period. Getting 10 signals a week or only 1 doesn’t necessarily mean in the latter case you got the best one.
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Very interesting response. This is actually the first time someone has told me this. Could you please tell me a reason as to why the indications you mentioned are more suited for divergence as compared to stochastic?
I guess I have so much more to learn!
I don’t use any of these indicators so it would be better for someone who uses them to give us both the benefit of their experience, I might learn something too.
“Divergence trading” - perhaps one of the most important approaches that a small trader can adopt in today’s market.
How is it possible that a minnow can confront a shark, the sharks have unlimited resources, the most expensive algos, the best paid research, the elite of programmers.
It happens that the more they spend the less they can diverge.
Divergence takes many forms, in stocks if the S&P is rising it’s worth looking at breadth, is the index being led by only a few or by many.
In FX, is the move representative of one of the currencies, is there a reason, or does the move diverge.
Divergence based on itself, i.e. an indicator which reflects is maybe not so accurate.
@frazali32. forexgump, certainly has the experience. I would rather use a CCI on lower charts set ip to 5 periods on say 1 hr thru a day set it to ten period. Use you draw tool and line out the divergence on your chart and on the indicator. Remember when a divergence occurs wait, wait for the change before entering, look lower for clarity and upper for confirmation.
Whether you are a divergence trader or any other strategy, the key thing is you learn it throughly. Learn how to modify it according to the market change as market doesn’t behave in the same way all the way. And same set up doesn’t work for every currency pair as well.
@FerdousAzam, While I am a rookie with out years of experience my personality type is aggressive-analytical. Analytical to the point of obsession at times until I can connect the dots and understand the action taking place now or in the past.
That said you say trade differently according to the market change. If you didn’t know what time frame chart you were using there would only be price action. How would you identify what strategy to use for the trade planning and execution?
There is only price Action and it doesn’t change with the time frame. Markets go up, down and sideways. There is only price action.