I have a platform that provides the total amount of stocks trading above the 200 SMA. I've found over the years this is an Great Divergence Tell.
I just noticed if you type the number 200 where you would type input a symbol for the chart you get a drop down list of tons of symbols that break down the stocks trading above the 200 SMA for S&P, Nasdaq, Russell etc.
I also found several symbols that show the same criteria for 100 period, 20 period SMA's etc. Haven't had time to research them yet. I have professional data feeds that don't provide this breakdown of information.
Take a look and please post if you find anything useful. After I do my own research I will do the same.
Comments
timwest
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The way to trade a "divergence", the way I look at trade set-ups, is to enter breaking below a previous week's low. Hold short if the close of the week is below the previous week's low. Add to the trade if the next week has a lower-low and a lower-high. Hold short for 3 average weekly ranges, at most. Risk is 1 average weekly range. I would think that would work just great and allow you to capture enough profit for the risk. Now that the market is already pretty oversold, it would alert you to take the position off. Perhaps another way to cover would be a drop of 30 in the %>200dma number from 80 to 50, for example.
ChrisMoody
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Tim...I couldn't agree more. I was in a rush when I posted the chart...Similar to your experience I've been trading divergences for a long time...actually it;s one of 3 trade setups my original mentor taught me around 12-15 years ago. It is the only setup I trade countertrend. If the market is in a Bull Trend I much prefer nice pullbacks that create Bullish Divergences going with the Trend. First, this indicator/symbol isn't my highest probability setup, I just wnated to show the symbols b/c it's actually pretty hard to find a data feed that provides this info. It does make sense that if the market is making new Highs, while underlying stocks in that index are not only NOT making new Highs...there falling below the 200SMA which is major support...Then something is about to happen. Could be a normal pullback...could be significant.
Regardless BY FAR the Most Important thing someone can learn from this conversation is the Money management you listed above. Because divergences always look great in hindsight, but they can kjepp going a lot longer than someone anticipating the move might think. My system is similar to yours. When a good divergence sets up....I Wait....Wait...Wait.. Until the low of the previous bar is taken out and then enter. Instead of risk being one ATR I place a stop avobe the high of the previous bar, and depending on the distance I have a set % amount I risk per each of of my different trade setups, and adjust my position size accordingly. Like you I have a fixed, defined, acceptable Risk. I would need to have more info on this chart to quote an exact exit strategy but in general I'll take 1/3 to 1/2 off at two times ATR, protect my profits, and IF the move takes out major support I add in on pullbacks to resistance. On a Bullish divergence with the trend I handle the position similar to you adding in aggressively, but again...Going with the trend...
Great Points you made on this and the chart you posted. Great Points....
timwest
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Hi Chris. I copied your chart format and put a few comments on it and republished it thanks to your good work. I gave you two credits in the description.
tradingview.com/v/2MHNrBhr/