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Chapter 18, Part III. Divergences with oscillators. Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 21, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Chart #3 | weekly EUR/USD hidden divergence with Stochastic

    Pipruit: Well. I think I’ll better stay with MACD for divergence estimation. Still, I understand that if we use some normalized oscillator we have to wait for accomplishment of these major rules:

    1. Wait for lines crossover at close of bar to confirm divergence;

    2. Wait for when the oscillator will come out from oversold/overbought area;

    3. It’s preferable if divergence forms when the oscillator not at an oversold or overbought area;

    4. And, final common rule – be careful with divergences in free space. Divergence that forms at some strong support/resistance area and confirmed by patterns and oversold/overbought indicators is much more reliable.
    Commander in Pips: Yes, absolutely.

    Pipruit: Commander, I just want to ask you one more thing. Could you please specify some rules of drawing and recognizing divergences? Probably I should have asked it in the beginning of this chapter but forgot to do it…​

    Commander in Pips:
    Oh, right. Let’s do it:

    1. Divergence could exist only if market forms:

    - Higher highs;

    - Lower lows;

    - Double top;

    - Double bottom;

    It’s no sense to break your eyes watching on indicator, till that happens. Also, these tops/bottoms have to be easily defined. So, if you will see something like that – this is not the precedent for divergence:

    Chart #4 | 5-min EUR/USD - do not ever search for divergence is such environment

    2. If you see well defined tops or bottoms - draw the line that links it from right to left. If you see some bumps, deeps, choppy and sloppy price action as on chart #4 - ignore it.

    3. If market makes higher highs – link the highs, if market creates lower lows – link the lows. Don’t mess it up pal!

    4. Once you’ve linked price tops/bottoms – take a look at indicator. Here your major interest is tops/bottoms of indicator. Ignore all other price action!

    5. You have to link the same extremes on indicator as on price chart. If you have linked on price chart tops – so do the same on indicator. Bottoms – connect indicators bottoms.
    #1 Sive Morten, Dec 21, 2013
    Lasted edited by : Apr 17, 2016
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