How to trade with an oscillator

[murthyavr]

Murthy, the following old posts might remind you of some early lessons by ST on hidden divergence.

EagleOne,

Thanks for your post and for searching for an older post.

Yes, I know about hidden divergences. My post was specifically aimed at finding
out whether the second trough (where divergence was marked) can be really
treated as a trough. In fact this post of mine was a follow-up of one post
earlier to that!

I always used to struggle to remember all the four types of divergences until
I came across this mantra:

Hope the above will be useful to some of us!

 

[EagleOne]

Thanks Murthy for the 'mantra'. Good one.
BTW, I didn't make any special effort to search the old posts. I saw your mininifty chart, and the damn thing just flashed in my mind! So I retrieved the posts for my gentle friend - you.

And also, there is always a trough as long as there is an amplitude - howsoever microscopic. Besides, on 5 min chart I wouldn't ignore a tiny 4 point candle wick even! It is worth Rs 200, you know...

Hey, you take care. See you around. Good night

 

[rangarajan]

Market just drifted down...I dont see any divergence here...

Always use price action.....dont depend on oscillators as primary trading tool...use them as supporting tool.

Few people trade patterns on indicators....but I have not found them very tradeable....

Smart_trade

Divergence:Around 10am,when the Stoch was at 60,stock was at 276(approx from the still chart)
Subseuently,when Stoch was above 80 around 14.10,the stockwas at 260.Higher high on stoch & LL on stock.In between these periods,Stoch made Higher Lows. So,i thought,the stock may go up,ignoring the value 80 for Stoch & bought on slight retracement.
Pl discuss as to whether my understanding of divergence is correct.
Whether the above is divergence at all & if not,what is the mistake.
Pl elaborate on the price actions u r often discussing.

 

[rangarajan]

Rangarajan, what are your stochastics settings ??

Full stoch 8,3,4

 

[murthyavr]

Divergence:Around 10am,when the Stoch was at 60,stock was at 276(approx from the still chart)
Subseuently,when Stoch was above 80 around 14.10,the stockwas at 260.Higher high on stoch & LL on stock.In between these periods,Stoch made Higher Lows. So,i thought,the stock may go up,ignoring the value 80 for Stoch & bought on slight retracement.
Pl discuss as to whether my understanding of divergence is correct.
Whether the above is divergence at all & if not,what is the mistake.
Pl elaborate on the price actions u r often discussing.

Dear Rangarajan,

Divergences are looked for, when the stoch makes a new peak. Or when it makes
a new trough. The new peaks or the new troughs on Stoch are connected and
then we look whether price also behaved in a similar way. If not, we call it
a divergence.

In your case, as far as I understand, you are trying to compare stoch with
price on a point-to-point basis. "Stoch was xx.xx at 10:40, price was xxxx.xx,
then stoch was xx.xx at 12:00, then price was xxxx.xx" is a P2P analysis,
and the traditional way of looking at divergences doesn't operate like this.

For a better as well as basic understanding on divergences, the following will
be of great help.

Stoch Divergences

 

[poortrader]

I second that request. I still don't know what is a hook, far less how to interpret it

I lend my support to both of you. Please ST feed us with some tricks about "HOOKS"

 

[rangarajan]

Dear Rangarajan,

Divergences are looked for, when the stoch makes a new peak. Or when it makes
a new trough. The new peaks or the new troughs on Stoch are connected and
then we look whether price also behaved in a similar way. If not, we call it
a divergence.

In your case, as far as I understand, you are trying to compare stoch with
price on a point-to-point basis. "Stoch was xx.xx at 10:40, price was xxxx.xx,
then stoch was xx.xx at 12:00, then price was xxxx.xx" is a P2P analysis,
and the traditional way of looking at divergences doesn't operate like this.

For a better as well as basic understanding on divergences, the following will
be of great help.

Stoch Divergences

Thank u murthy.
I will go thro the topic & revert.

 

[poortrader]

Hi Murthy,
As per my understanding the ANTI SYSTEM goes like this. I hope ST will give his inputs.
ANTI SYSTEM

It is basically a quick trade setup.The profits are ideally taken in 2-4 bars (for intraday it will translate to 10-20minutes of action based on 5 min bars)

The setup relies on the trend of %D, and the %K gives the entry point.
Once you identify a trend in % D then look for a correction /pullback of 2-3 bars in %K. When % K turns the direction of %D again after this small
correction/pullback then is the time to enter.
Stops are important for this quick trade, you can draw trendlines to confirm the trades, and put SL below the recent swing low/bar of entry.

In the book Street Smarts the suggested value of %D and % K for this sytem are seven period %K smoothing by 4, and 10 period % D (the slow line determining the trend and also the long/short side of the trade)

Hook in this system
%K hooks up, the meaning is that %K goes opposite to the trend of %D for 2-3 bars and then turns back towards the %D trend, thereby forming something like a hook

Important
With this setup, the slope of the %D will identify the trend of the momentum. The best trades occur when the %K corrects back at least two to three bars.

Dear ST,

Thanks for your prompt clarification.

I am posting today's MINIFTY chart here.

If you notice the line on the oscillator, the second trough is not actually a trough
in the strict sense, but this divergence gave about 40 points.

Now:

1. Is this an exception ?

2. Or, is it because of the hook made by %K on %D?
(You promised sometime back on this HOOK method, and I hope you will find
some time for that.. )

Thanks,

 

[timepass]

and what when you see %K and %D criss crossing 2-3 times ?? sort of chaining..??

 

[Smart_trade]

Hi Murthy,
As per my understanding the ANTI SYSTEM goes like this. I hope ST will give his inputs.
ANTI SYSTEM

It is basically a quick trade setup.The profits are ideally taken in 2-4 bars (for intraday it will translate to 10-20minutes of action based on 5 min bars)

The setup relies on the trend of %D, and the %K gives the entry point.
Once you identify a trend in % D then look for a correction /pullback of 2-3 bars in %K. When % K turns the direction of %D again after this small
correction/pullback then is the time to enter.
Stops are important for this quick trade, you can draw trendlines to confirm the trades, and put SL below the recent swing low/bar of entry.

In the book Street Smarts the suggested value of %D and % K for this sytem are seven period %K smoothing by 4, and 10 period % D (the slow line determining the trend and also the long/short side of the trade)

Hook in this system
%K hooks up, the meaning is that %K goes opposite to the trend of %D for 2-3 bars and then turns back towards the %D trend, thereby forming something like a hook

Important
With this setup, the slope of the %D will identify the trend of the momentum. The best trades occur when the %K corrects back at least two to three bars.

Yes Poortrader...you are absolutely right....great going.

Anti is a method based on hook...please put up 1-2 charts explaining the set up and entry as you have understood it correctly.

Hook basically is nothing new....we identify a direction of the trend on slope of % D line.....suppose it is going up....we look for a antitrend move on %k a small downward corrective move of 2-3 bars....and then the last corrective bar's high is taken out, we go long with a stop of the low of that last corrective bar...and ride the main trend which is up. This is a very short term method and we take profits in next 3-4 bars but the risk is small so it gives good RR trades.

Smart_trade