Nov 17th 2019, Crypto Chartbook – Indicator divergence

Indicator divergence

With a vast following of market speculators, we receive a consistent inflow of questions and comments about the market. Traders ask in our our telegram channel, in which we post our trades live, and via e mail as well as in our public appearances, about all kinds of market related issues. One phenomenon seems striking. The fact that most find taking the “easy” trades hardest and simply skip them. We strongly discourage such behavior. There is no evidence that trades that “look too good to be true” have a diminished statistical edge. Quite the opposite, altering a systematical approach in skipping easy to identify (“beautiful” trades) signals, will have a negative effect on ones overall performance. Indicator divergence is one such stack-able edge that at times is unmistakably present to ones observation.

As with any other edge it should not be traded isolated. And, in principle, the outcome of the trade is still random from an individual trade perspective. Leaving clear signals out is negative curve fitting and should be avoided. So the next time you see an indicator divergence like the following, just trade them alike the lesser pronounced ones.

 Daily chart, BTC/USDT, October 6th 2019, “price in sideways range”:

Bitcoin in TetherUS, daily chart as of October 6th 2019 a

Bitcoin in TetherUS, daily chart as of October 6th 2019 a

In the chart above, one can identify a two weeks sideways price trading range. The US$7,800 price zone in Bitcoin is representing support. While prices go sideways the Commodity Channel index indicator shows a clear divergence with higher readings. We placed a long entry at the time live in our telegram channel.

Indicator divergence, BTC/USDT, daily chart, October 11th 2019, “positive indicator divergence”:

Bitcoin in TetherUS, daily chart as of October 11th 2019 b

Bitcoin in TetherUS, daily chart as of October 11th 2019 b

Five days later the bitcoin market had advanced by 1,000 points.

11/16/2019, BTC/USDT, daily chart, “price trending down”:

Bitcoin in TetherUS, daily chart as of November 16th 2019 c

Bitcoin in TetherUS, daily chart as of November 16th 2019 c

This daily chart shows a price decline over the last nine trading days. Upon other reasons, we went long due to a clear indicator divergence present in the Commodity channel index indicator, which was moving in the opposite direction.

 



 

BTC/USDT, daily chart, November 17th 2019, “indicator sloping upwards”:

Bitcoin in TetherUS, daily chart as of November 17th 2019 d

Bitcoin in TetherUS, daily chart as of November 17th 2019 d

The following day immediate price advances allowed for taking the risk out of the trade (see our quad strategy). What is left is potential (green up arrow) without risk. A traders ideal scenario to play with the markets money.

Indicator divergence

If you have to squint to see an edge on an indicator, you might skip over taking a trade. An edge should be clearly identifiable.

On the other hand, skipping a trade, just because it looks “too good to be true” has no merit. By defining ones edges as clearly as possible and than executing a trade upon its appearance without hesitancy, one assures a consistent outcome.

All charts timely posted in our telegram channel.

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About the Author:

Outstanding abstract reasoning ability and ability to think creatively and originally has led over the last 25 years to extract new principles and a unique way to view the markets resulting in a multitude of various time frame systems, generating high hit rates and outstanding risk reward ratios. Over 20 years of coaching traders with heart & passion, assessing complex situations, troubleshoot and solve problems principle based has led to experience and a professional history of success. Skilled natural teacher and exceptional developer of talent.Avid learner guided by a plan with ability to suppress ego and empower students to share ideas and best practices and to apply principle-based technical/conceptual knowledge to maximize efficiency. 25+ year execution experience (50.000+ trades executed) Trading multiple personal accounts (long and short-and combinations of the two). Amazing market feel complementing mechanical systems discipline for precise and extreme low risk entries while objectively seeing the whole picture. Ability to notice and separate emotional responses from the decision-making process and to stand outside oneself and one’s concerns about images in order to function in terms of larger objectives. Developed exit strategies that compensate both for maximizing profits and psychological ease to allow for continuous flow throughout the whole trading day. In depth knowledge of money management strategies with the experience of multiple 6 sigma events in various markets (futures, stocks, commodities, currencies, bonds) embedded in extreme low risk statistical probability models with smooth equity curves and extensive risk management as well as extensive disaster risk allow for my natural capacity for risk-taking.

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