vlad.adrian

EURUSD - Sep2011 - Nov2014 divergences

FX:EURUSD   Euro Fx/U.S. Dollar
2417 29 36
One user said that according to analysts 70% of divergences are fake. I would like to meet those so called analysts.

This is a simple study, with simple triggers. Other time frames have not been considered, otherwise, some of these divergences wouldn't be taken into consideration when using my trading system. Besides this, S&R levels have not been considered either. For the sake of simplicity, the only triggers were blue impulse and bullish or bearish candlestick. Impulse blue means that the color on the Elder Impulse system is blue. EIS             is measuring the direction of a 13EMA and the histogram. That means that whenever there is a down tick or up tick on the histogram, contrary to the prevailing trend, the impulse will become blue, as the 9 day MA on the histogram is quicker than the 13 Ema. There are articles accessible for everyone on the web about this amazing trigger system, and even explanations from it's inventor.

The divergences had a 66% accuracy, and considering the risk reward ratio, the profits would have been much larger. For example, the best divergence had a 7,85 risk reward ratio if the exit is considered the most extreme price on the chart.

Note that this is only theoretical, and I'm not trying to prove how much money you could have made. I am only showing that whoever says that most divergences fail is dead wrong. For this study only 3 years of data have been considered, otherwise the results would have been different, most probably.

Keep in mind : "Divergences are the holy grail of technical analysis". No idea who said that, but he/she was so right!
JimFred PRO
2 years ago
Good info - thank you
+1 Reply
What do you mean by go long on blue impulse and candle signal?
+1 Reply
zedtrader
2 years ago
Great information, thank you so much for putting this together. Divergences play a key part of my trading plan. I have the same question as @Technician below; what do you mean by "the only triggers were blue impulse and bullish or bearish candlestick"? Thank you so much!
+1 Reply
Actually, IMO divergences are pretty deceiving for the new traders, as they see them as "MAGIC" working most of the times, but the truth is its in hindsight , when it comes to real evaluation of divergences its something totally different. I spent years studying divergences, and i can conclude that counting on divergences can get you broke. I dont mean that they are useless, I use them as part of different tools.
+4 Reply
Technician TOP Technician
2 years ago
for example, by looking at your chart, i can see a lot of wrong signals, where you spotted divergences that do not exist. The first green arrow is not a divergence as price didn't make new lows, or at least touched the previous low. Also the first red arrow is not a divergence as price didn't make new high or even touch the previous high. Then the Green arrow near May 20 2013 low is also not a valid divergence for the same reason. The red arrow at December 12 2013 is not a divergence. So i can surely tell you that this sample is not accurate in giving a useful outcome, due to the errors made and the very small sample size.
+4 Reply
Kumowizard PRO Technician
2 years ago
Yes I agree, divergences are good for calling your attention, and focus more on Price action, but trading on a divergence alone is bit dangerous without an actual reversal signal. Anyway, on the last red arrow he will likely be right, but with that we still have to wait and see where the Price and the local minimum will be exactly at the time of the next MACD bullish cross. So I'd call it possibly a positive divergence is developing.
I will check my model how it looks on my lower 4 Hrs swing trading time frame, but I bet it is still bit far away from a counter trend swing buy opportunity.
+3 Reply
Ernestuxas Technician
2 years ago
I agree
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Ernestuxas Technician
2 years ago
Agree
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vlad.adrian PRO Technician
2 years ago
It depends on how you look at them. Whenever price gets close to a previous high or low and the oscillator is considerably lower or higher, I consider that a divergence. It is my interpretation. This approach does not work in a trending market, but in a choppy market like EURUSD it works pretty well. The second red arrow, it rights in the oscillator window that it is a sort of a divergence, and frankly I should have written that at the first divergence too. I took every divergence on the chart to show that even those divergences that don't look great sometimes work. I did say in the chart that this is a theoretical example and trading with real money at the time divergences were forming would have never made you the money you might think by looking at the chart. I also said that if the period would change, the results would be completely different. I made this chart at 3 am in the morning, I did not have time to check 20 years of data. It might seem that I am just inventing divergences, but actually I am not. I actually trade an almost divergence, and I invite you to check the results on the charts I'll publish in the future with this kind of divergence like the first arrow and the first red arrow. I'm sure I have some published already, I will check and I will post them here. Note that the arrows are triggers, and a divergence might have more triggers.

Impulse blue means that the color on the Elder Impulse system is blue. EIS is measuring the direction of a 13EMA and the histogram. That means that whenever there is a down tick or up tick on the histogram, contrary to the prevailing trend, the impulse will become blue, as the 9 day MA on the histogram is quicker than the 13 Ema. I will post this in the description because I realize now that other users might be confused. However, there are articles accessible for everyone on the web about this amazing trigger system, and even explanations from it's inventor.
-3 Reply
Dimitris
2 years ago
Diverrgence is only relelvant when it occurs at S/R levels or supply/demend zones and/or on trendlines. Even if they do not occur at such areas they ussually produce some reaction/bounce which gives you the possibility to scratch the trade at BE or even with a small loss if it reverses against you. Divergence is an adding/confirming factor in an overall system and not a strategy per se.
+2 Reply
vlad.adrian PRO Dimitris
2 years ago
That is exactly what I said in the description, only with other words. This chart was never about how divergences on a daily chart will make you a successful trader. It was about the accuracy of divergences.
-2 Reply
"I am only showing that whoever says that most divergences fail is dead wrong. " . IMO i think he is dead right..
"Divergences are the holy grail of technical analysis" There is no holly grail of technical analysis
+3 Reply
zedtrader Technician
2 years ago
Sounds like you are trolling his post now @Technician. The way I understood it was divergences, USED ALONG WITH OTHER TOOLS can be very powerful. Anyway appreciate both your analyses and comments but no need to continue to beat up his post here.
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Technician TOP zedtrader
2 years ago
I am just opposing talking in absolute terms, using phrases like "whoever says that most divergences fail is dead wrong. "
"Divergences are the holy grail of technical analysis". That is not professional IMO, nor will prove any point.
+1 Reply
zedtrader Technician
2 years ago
Yes of course, and for new traders wording like that can be misleading you are absolutely right. I am sure he meant it more for headline value than in absolute terms. Anyway, appreciate your comments and insight Technician.
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Technician TOP zedtrader
2 years ago
As to my experience, I am seizing this opportunity to tell new traders to not take this info as given, and always deal with divergences with a grain of salt cause it always mislead inexperienced traders. This is my responsibility here i believe. Anyway good luck to everyone with his own beliefs.
+4 Reply
vlad.adrian PRO Technician
2 years ago
No need to argue about this guys.
I trade divergences and they do a great job for me. It's the best TA tool I use. I think my description was pretty clear : 'Note that this is only theoretical, and I'm not trying to prove how much money you could have made."

Also, all triggers on the chart are real divergences, I didn't get anything wrong, it's just a matter of how one perceives a divergence.
-1 Reply
NickCoulby PRO Technician
2 years ago
I agree with Technician
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vlad.adrian PRO NickCoulby
2 years ago
There are more ways to make money trading
-1 Reply
Coordinator
2 years ago
Divergences alone means nothing. You need additional indicators to filter out bad divergence signals.
+1 Reply
Saoldric PRO
2 years ago
I enjoy trading divergences. I think where newer traders mess up is how to properly set R:R with divergence trades. They dont get out of the trade because they continue seeing a divergence. for example i was expecting looking for a chance to add more shorts on a retrace, it never happened.

snapshot
+1 Reply
Technician TOP Saoldric
2 years ago
True
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jeremyb Technician
2 years ago
For me this divergence is 02-10-2014 >> 11-11-2014 is true,but I'm agree with Technician about the other past divergence, it was not a divergence. What do you think guys about the november divergence vlad adrian "family guy" have find?
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vlad.adrian PRO jeremyb
2 years ago
Mr Market is going to answer that. He is always write, unlike all of us. You will just have to wait a couple of weeks for your answer
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mrTylerDurden
2 years ago
Nice done. Could you please tell for how long you've been using it and how effective it was for you money-wise -- I mean, not in particular numbers of course
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vlad.adrian PRO mrTylerDurden
2 years ago
I can't give you a straight answer for two reasons. On EURUSD, I have only taken 2 very tiny trades. I have been watching the chart since the start of the current downtrend, before that, I absolutely hated it. It took a while for me to realize that there are trades on EURUSD too.

If we are talking in general, I never take a trade based only on a divergence. I have a whole system and more signals have to be aligned in order to take a trade. Whenever I don't follow the system properly, I loose money.
-1 Reply
Alisho
2 years ago
Is this EIS indicator your own creation? It looks like a good tool for trader which are using divergences a lot.
for botoms and tops I also us "failure swings".. I underly the RSI on the chart.. and spot divergences on tops and bottoms. It really helps me
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vlad.adrian PRO Alisho
2 years ago
No, it's called Elder Impulse system, so it can't be my creation. It's designed to measure momentum, and also helps at confirming divergences. You can find lots of articles on the web.
-1 Reply
c0les0
2 years ago
Divergence on MACD is just a sign of an ending wave. The right question is - what level of the wave is going to the end? :)
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