Dancing of prices and indicators: divergences and convergences
In my past messages, much has been said about the analysis of technical indicators. Sometimes, no matter how you twist the indicator, no matter how you study the statistics of its behavior, it just doesn't work! However, this does not mean that the indicator is bad and that it is not helpful to us. In addition to classical signals you can look for divergences and convergences on the charts.
Other articles of the master class "The stock market. Middle of Knowledge".
- How to calculate the profitability of stock indicators?
- Indicator periods: selection of operating parameters
- Checking our homework on indicators: EMAs on Russian stocks
"Golden Trading Signals
These signals are very rare, but they truly can be classified as golden. After all, if you find them in time, you can very quickly, literally in three days to earn as much - as an investor dreams to earn in a year.
To find figures or signals like divergence or convergence on the chart, you don't have to think about it for a long time. Find the trend. And then see what happens to it now. If it is flattened and draws "mountains", then surely there is something interesting here. When you worked by this trend, you don't need to look, you understand by the account dynamics that the quotes are mashing up, something is going on.
Divergence - sell signal (after a strong rise, the mountains build up on the price chart, and the indicator is already drawing a "failed swing"). Look for it after the rise!
- 1 target - the bottom between the two peaks of the signal, usually reached quickly, sometimes in one or two candles.
- Target 2 - the beginning of the ascent, the bottom of the first wave of movement. Whether it will be reached depends on the overall market environment. Look for it after the fall!
Bullish divergence or convergence - a buy signal (after a big drop, the bottoms on the price keep updating, but the indicator draws a "failed swing")
- 1 target - peak between two bottoms, usually reached abruptly.
- Target 2 is the peak of the first wave, the beginning of the downward movement. It is achieved more often than the second "bearish divergence" target.
The priority is the behavior of the price chart, and as an indicator you can choose any popular oscillator, or an indicator of trading volume.
There are also variants of "flat" signals, which are weaker. When working with them, I mostly focus only on the first target.
To wait or not to wait for the goal of convergence?
Perhaps you have a question when you can state that a divergence or convergence will most likely work out, rather than a continuation of the past movement? Let me take an example.
And how do you make sure that this bottom is true? And how do you for trending Are you convinced? Many traders are waiting for confirmation, the prices of several intervals should be above this bottom. Or you can draw initial trend accelerationIt is better on a smaller scale, and wait for its breakthrough, then buy and wait for the targets to work out. The second option is the best, because there is less margin of error if we have chosen the wrong confirmation interval. Divergences and convergences are the only signals for which I do not use time filters! In two or three waiting intervals the price can reach the first target, as I pointed out above! Plus, it strengthens the signal that the minimum is true if the volume is small in this interval.
The example is my personal experience. You may have your own breakout criteria. If there is no "divergence" or convergence, I usually take securities after confirming the breakout with a couple of closes above the resistance boundary.
In addition to these signals in my arsenal I have a couple more, which, if they appear, can give a huge profit quickly, about them I will tell another time. Too bad, That they are just as rare, as a divergence. But from world to world, here a signal, there a signal, you see., and you'll build up a full-fledged strategy. In the meantime, use "devers" during a period of stagnation in the market and, of course, not wah-bank!