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Originally Posted by Switchjohnny
Does anyone out there have a good system to pick MACD Divergence calls in a large trending market? For example during a day when the GBP/USD moves 100+ pips in a direction, there is usually a few false divergence calls. You'll see divergence, then it'll continue in that same direction, often giving 2-5 false divergence calls until it reaches the top of the trend and reverses.
Does anyone have a clear/simple way to determine if a divergence signal is good?
Like in this image, there was a divergence call, then price continued upward and created a second divergence call. Is there a clear way to trade this so I do not take the first divergence call? Something that is fast? |
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Switchjonny,
In addition to divergence you need to understand the rhythm of the particular market and filter with Stochastic (8,3,3) would help a lot.
Divergence:
with more experience you can use divergence on
4h charts as well as on
5 minutes, BUT:
the line on your chart is incorrect: the divergence cannot have any bumps; if you have a bump, change the timeframe or wait for the next train.
If you really have to take such trades as on your chart,
the 1st divergence ocurred 8 bars earlier, but then pulled back a little bit (as usual!!) and is not worth the risk.
In fact, I would have identified the
first divergence as
"hidden divergence" with higher lows on the price chart but slightly lower low on the second indicator low, which then would be a
confirmation for a following UP movement.
The second trade is still early but seems to be valid,
not b/c of visible divergence, rather because
- you have a rejection on the MACD signal+zero line
- the signal line is down
- you can see a small double top formation
Btw: trading below 5 minutes without being near or on the floor is dangerous.
I would have waited 6-10 more bars, until the last low breaks - if I would trade 1 minutes ..
Cheers!