Complex trading system #3 (MACD Divergence)

Hi ck,

Good observation.
Yes, indeed, when ADX is rising and especially when it is high and above 40, 21EMA will act as a strong support/resistance.

Not quite sure I understand the last words:
"..and there is less likely to be a crossover for Divergence?"

When ADX reaches 40 and above, it warns traders that the trend is completely "mature" and it is time to plan for exits and already protect profits by applying trailing stops.

Thus when 21EMA is crossed while ADX readings are 40 and above it is a serious warning that the current trend may be over.

I'd be interested to continue this discussion, and if you can, I'd like you to send me a screeshot explaining your recent post in more details.

Best regards,
Edward

Hi
How many closed bars are acceptable for to be able to spot a divergence. For example if the last 5 bars on a daily chart are giving divergence is it a working one?

5 bars are more than enough.
The alert about a forming divergence comes even earlier.
Here is a quick sketch I made:

As you can see, we've got the early warning: price already making new highs, but indicator doesn't confirm that. The next is down to observation. We should see a top forming = a swing high (Swing high consists of 3 candles: the middle candle must be higher than its neighboring candles). Once a swing high is in place and divergence between price and the indicator holds, you can get ready and wait for Sell signals according to your entry rules.

Regards,
Edward

Hi,

If two peaks on MACD form a divergence but first peak is form just before the close of a trading day and the other peak forms just after the open of the next trading day, is there still a divergence?

Yes, you can use those peaks in order to identify a divergence.

Regards,
Edward

Hi Edwards,

I appreciate this your system on divergence. However, I want to comment on your parameters of MACD -5,26, 1. I dont really support it as you rarely see divergence on this parameter. I use MACD default parameters instead. Your stockastic parameter is ok and I add Commodity Channel Index to it.

Each time I see divergence or convergence on MACD, or Stochastic, or CCI, I dont wait for the crossing of EMA 3 and SMA 13, reason is that a lot of pips would have gone before this crossing. Instead I use CCI touching my 100 or -100 depending on the type of divergence. I dont stay too long and minimum of 20 pips is always guaranted.

Edward, divergence is a strong indicator. Sometimes too, in combination with the cci, i check it out with stochastics 20, 80 points to know when to pull my buy or sell triger. A combination of bolinger band in this case suggest the limit of the trend. If you would not mind, insertion of fibronaci retracement would suggest the first level of retracement of the trend as divergence/convergence signals reversal of current trend.

Another hint that could give you more confidence when trading this system is when you see your MACD tending towards 0, or you see your RSI crossing line 50, (above or below) as the case may be. This could be wonderful.

Edward, you are doing a great work here. I respect your brain. Keep it up.

To your success.

Mr. Ayoade Awonigba
Oracle of forex trading
www.mozanforex.com
234-805-202-9796

Thank you, Mr. Ayoade,

Good stuff. I appreciate your tips and advice; (took notes for myself).

Best regards,
Edward

Dear all, has anyone profited consistently using tis MACD Divergence strategy? If yes, did u combine with any other indicators, as mentioned by Ayoade?