Ok @antonblood63, I will give you a very simple explanation. It is not my system, but here the 3 factors to take away with this system. It is not a system where you are in the market all the time ,because like my wife, sometimes she misbehaves. but we will put strategies in place for those occasions.
Ok, Firstly, we have regular and hidden divergence on our RSIs, I will show an example of both.
Firstly, don’t worry too much about the time frames yet, we will get to that. Ok here you see the RSI is making lower tops, and the market is making higher highs. That shows us regular divergence, which is a good signal,for a Sell, but you will have to trade against the uptrend, isn’t it? I normally use a 21 EMA for a clue whether the trend is up or down.And I never trust only one indicator, that is suicidal, because no one indicator works all of the time, believe me, you WILL wipe out your account.
Ok, with regular divergence on the RSI, we think the market could possibly go down, now we want confirmation ,so, that is where Japanes candlestick formations come into play. So we have regular divergence, and a shooting star candlestick formation ,which is good for a divergence trader, and we would sell. However, I have found that trading against the trend is just stupid. You are constantly on edge, and like the oceans, when the tide comes in, it does come in very powerful.
So what is the solution to this? Hidden Divergence. Remember now that with regular divergence, the market is making higher tops, but RSI is making lower tops, that could trigger a trade, but you will always trade against the trend.
Hidden Divergence. Hd is where the market makes higher lows in an uptrend, but the RSI makes lower lows. OK ,example.
Here you can clearly see that there is once again divergence between price and RSI. But here, the market is making lower highs, clear signs of a downtrend, but our RSI is making higher highs! So, there the market gives you a clue, the trend is down, the market is below the 21 EMA, the RSI is giving us higher highs, and turning down, And we have a Japanese candlestick formation, so??? TRADE!
The only candlestick formations I find valuable, is Bear/Bull engulfing, Dojis ,Shooting stars, Hangman, and their opposites. So, combine Hidden divergence ,candlesticks, the direction of your trade should normally be in the direction of the trend, and there you go!!!
But, remember, there are no indicators that work all the time, else we would be millionares. Combining some, will give us a distinctive advantage… Tomorrow we could look at Risk management, position sizing, and stop losses. Tomorrow will be much more important than today, but, get the idea ,and tmrw we go further. We have to look at exit points. Till tomorrow!
