How to trade with an oscillator

[Smart_trade]

Dear Smart,
I have posted the chart of copper as at 17.35 today.(MCX)
I have marked the negative divergence as i understood.
The short was near 405.6 & it came down only upto 405.25 & reversed.
Was the trade correct & if so why it went wrong.What should have been the s/l.
Perhaps the only point of concern was that the intermediate trough was near 30 in stochastic when the tops were compared.
In one hr TF,P/L was formed & uptrend

As you rightly said, between the two tops which you are comparing for divergence, there is a valley which has gone as low as below 30. So in this case the buying pressure got already dissipated and what we had in the form of 2nd top is a new move after the dissipation of the buying force. So don't compare these two tops for negative divergence.

Smart_trade

 

[Smart_trade]

Dear ST,

Thanks for the chart.

In the above chart, there are three possible entries for a buy transaction.

1. 13:30 candle - Here %K crossed %D after divergence.
(Basing the trade purely on divergence)

2. 13:35 candle - Here this candle crossed the previous PH of 13:05
(This crossing is important, because it indicates trend reversal in this TF)

3. 13:50 candle - This candle breaks the TDST Resistance.
(Ultimate proof!)

However, we would be moving away from ideal stop loss as we wait from
candle-1 to candle-3.

--

So, where do you take the trade generally?

And, do you enter the trade on a closing basis or as the price breaks-out?

The entry in the long trade will be as under :

1) 50 % on 1:30 bar high as it closed above a bearish candle at 1:15 after giving divergence. Divergence is just an indication that market may reverse, the actual trade has to be on the price showing strength.

2) 50 % on 1:35 bar high as this bar built on 1:30 bar and closed above 21 MA...this is the confirmed entry.

Smart_trade

 

[Smart_trade]

Dear Smart,
I have a query reg 'Trading the Divergence'.
Once the Divergence has been spotted,is there any thump rule reg any particular bar High/close/Low /colour(bull or bear)/no of bars/pivot/crossing of d&K/TF confirmation,etc,for entering Long/Short/Exit.

What is TDST Resistence/Support(murthy's post above) & its significance

Rangarajan,

From the above post you will understand how we can enter into the trade on the divergence.

For TDST see some of my posts in Thomas DeMark Sequential system thread. There I have given few ways of using TDST. As you practice and experiment more with it, you will discover more ways how it could be used.

Today 3:00 bar in Nifty futures the low is exactly on TDST line where one is looking out to cover the short positions.

TDST is not a trading system.....so I am not posting it in this thread as I do not want people to say "I went short on TDST break and it did not work"

Smart_trade

 

[Smart_trade]

Hi ST,
Could you please tell me where can I get AFL for TDST and VWAP? Thanks a lot

Bala

Hello Bala,

Attached are AFLs for TDST and VWAP.

VWAP AFL was developed by Murthy so the credit is entirely his, thank him.

In TDST , you can reduce the clutter and just have TDST lines on the chart by disabling first two options through "Parameters"

TDST AFL unable to attach as it is saying that it has been already attached in Thomas DeMark Sequential System thread. You may have to take it from there.

Smart_trade

 

[4xpipcounter]

image hosting gif

Rangarjan, I'd like to add a comment to your chart.

I've noted with my marks the nature of what is going on with this market. In the past, there was also divergence and several times the market was OB without responding to the oscillator. When it has it ever slight reverse, the oscillator drops rapidly. Price cannot keep up. This is showing on this TF that momentum still heavily favors the UP.
What will eventually happen is this trend will give out, and there will be a hard drop in this TF.
Having said that, this appears to be the 5-min chart. If this is the case, then you may want to look at a higher TF like the hourly or 4-hour. Something tells me those TF's could be freshly OS and opened UP. Therefore, the higher TF would have kept you in the trade the whole ride north.

In a heavy trend on the higher TF's, the doors will get blown off the lower TF's.

 

[Smart_trade]

image hosting gif

Rangarjan, I'd like to add a comment to your chart.

I've noted with my marks the nature of what is going on with this market. In the past, there was also divergence and several times the market was OB without responding to the oscillator. When it has it ever slight reverse, the oscillator drops rapidly. Price cannot keep up. This is showing on this TF that momentum still heavily favors the UP.
What will eventually happen is this trend will give out, and there will be a hard drop in this TF.
Having said that, this appears to be the 5-min chart. If this is the case, then you may want to look at a higher TF like the hourly or 4-hour. Something tells me those TF's could be freshly OS and opened UP. Therefore, the higher TF would have kept you in the trade the whole ride north.

In a heavy trend on the higher TF's, the doors will get blown off the lower TF's.

Extremely important point you brought out, Paul ....wonderful.

Smart_trade

 

[balasoft80]

Thank a ton ST. I have got the TDST afl as well from that thread. Thank you so much Murthy for the VWAP afl...

 

[santoshdts]

Hii ST Sir,

My query is regarding Divergence...

was just going through TD's Book, in one of his first examples he mentions, Divergence analysis can be permitted, though not recomended. If there is no O/S or O/B recorded on the oscillator in between the two peaks which are been compared.

But as in above chart.. the same happened the Osc made an O/B reading and came down But did not record O/S reading again made an O/B reading giving a divergence in PA & Osc..

Can you please discuss in TD's terms Please..

regards

Santosh..

(Oops.. There was a Typo there)

 

[4xpipcounter]

Santosh, I'm sure Smartrade will add his outstanding insights on your query, and I know that's what the readers of this thread are here for, but let me add one thing.

Go back to the chart posted in #1061. It looks like a 5-min chart. Notice price action being virtually unresponsive to the readings on the osc. When you are looking at a lower TF such as that, the thing that needs to be done is scope up to the hourly or 4-hour. I looked for that chart but can't seem to find it in my repertoire, but without having any knowledge of this market, I would venture a safe guess if you look at your hourly or 4-hour, you will notice price and the osc acting in agreement. Considering there are 48 5-min candles for every one on a 4-hour, it renders the 5-min useless for the time being.

Just because there is a divergence or OB/OS condition on one TF, price does not have to react, and that is why in using an oscillator, you cannot take just what you see at face value.

Hii ST Sir,

My query is regarding diversion..

was just going through TD's Book, in one of his first examples he mentions, Divergence analysis can be permitted, though not recomended. If there is no O/S or O/B recorded on the oscillator in between the two peaks which are been compared.

But as in above chart.. the same happened the Osc made an O/B reading and came down But did not record O/S reading again made an O/B reading giving a divergence in PA & Osc..

Can you please discuss in TD's terms Please..

regards

Santosh

 

[santoshdts]

ThanX for the reply Paul Sir,

Your valid points about considering larger TF while looking to enter a trading decision is well taken.
But my query was on general divergence analysis.. fatigue:..Typo there in my earlier post.. now corrected)..
are there any rules set while looking for divergence in common.

can you please through some light on this subject..

Regards

Santosh