Replies to post #110780 on Simple's Green Room

[Coolman138]

Hey Qui-Gon Kagi
I read your long story addressed to pennies, I am sure pennies will answer it more competently. just I felt like sharing my thoughts that may be little helpful.
I have got couple of mini accounts wiped out trying to trade divergences. and one day it occured to me

` Divergences do show up in indicators when reversal happen, but it is not necessary that whenever we see divergence, reversal is going to happen`

you know what I mean, if you don`t get it, please read the sentense again. and try to think about it.

I do not have statistics, but I am sure if collected, we will come to know, more than 50% of the times when divergences show up in indicators, they do not lead to reversal. why I say that? it is common saying, more than 90% traders lose money in markets. How, why? this world is full of intelligent people. still people lose money. surely there will be more other important reasons for this failure, but one of the minute reason is trading divergences.

what I have come to know for myself, If you want to be successful in markets, do not initiate trades only on one parameter. you must have a set of different parameters that should be required to be satisfied.

recently I have been concentrating of waves and their counting, it is a powerful stuff for success but I have come to know, if you will trade only on the basis of waves, you are gonna fail. there are many many variations of waves, waves go into extentions, truncations and what not. different people will count same waves differently.

net result I have concluded for myself is set of different parameters.

I am not expert on subject, rather a kindergarton level student. but I felt empathy reading your post and thought to share my experience.

[pennies2007]

Hey Qui. Been out in the field doing a lot of service calls lately. I think my customers saved up all their demons for after the 1st of the year...LOL!

Ok, to answer your question, trying to trade off of just simple divergence in the TDI isn't enough...you have to get a solid foundation on wave counting before that's going to be of benefit to you. Learn to count a simple 1-2-3-4-5 pattern and you'll be ahead of the pack for sure.

One note on divergence...if the peaks on the tdi are relatively close together when you see negative divergence, the pullback on a bullish pair will be more shallow. But if the divergence on the peaks is further apart, you'll get more bang for your buck in the way of a pullback.

Here's a GU daily chart to give you an example. The first pullback I have shown on the left is a Wave 2 drop after a Wave 1 up. Wave 2 retraces deeply...usually most of the wave 1 length. Notice the negative divergence that spanned across more peaks. That's what I like to see, not just divergences on close-together peaks.

In the next spot, I can clearly count 5 waves up. So I'm already expecting a deeper retrace based on just the wave count alone. And sure enough, the TDI puts in a lower high at the peak. That divergence spans across several peaks as well. And we get a nice 3-wave deep retrace to offset the 5 waves up.

The key is to use the wave counts. Divergence alone isn't enough.