Divergence Trading Workshop Day One

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presented by. Thomas Wood | MicroQuant SM. Divergence Trading Workshop Day One. High Probability Continuation and Reversal Patterns. Risk Disclaimer. - PowerPoint PPT Presentation

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Divergence Trading WorkshopDay Onepresented byThomas Wood | MicroQuantSM

High Probability Continuation and Reversal PatternsRisk Disclaimer

Trading or investing carries a high level of risk, and is not suitable for all persons. Before deciding to trade or invest you should carefully consider your investment objectives, level of experience, and ability to tolerate risk. This content is subject to change at any time without notice, and is provided for the sole purpose of education and assistance in making independent investment decisions. ValueCharts.com has taken reasonable measures to ensure the accuracy of the information contained herein; however, ValueCharts.com does not guarantee its accuracy and is not liable for any loss or damage which may result directly or indirectly from such content or from an inability to access such information or any delay in or failure of the transmission or the receipt of any instruction or notification in connection therewith. Any past performance results are shown for illustration and example only, are hypothetical and as such have many inherent limitations. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. Past performance is not necessarily indicative of future results. CFTC Rule 4.41 (Hypothetical Disclaimer)

U.S. Government Required Disclaimer - Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures, stocks or options on the same. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results.

CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL, OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED WITHIN THIS SITE, SUPPORT AND TEXTS. OUR COURSE(S), PRODUCTS AND SERVICES SHOULD BE USED AS LEARNING AIDS ONLY AND SHOULD NOT BE USED TO INVEST REAL MONEY. IF YOU DECIDE TO INVEST REAL MONEY, ALL TRADING DECISIONS SHOULD BE YOUR OWN.

Workshop Outline

Simple Ways to Improve All of Your TradingIntroduction to Indicators UsedGeneral Rules for Stop PlacementUnderstanding DivergencesTrading No ReturnsKnowing When a Market is Entering ConsolidationTrading the Golf Club and High Flying Flag Identifying Momentum Inflections

Simple Ways to Improve Your Trading Success

Tips to Improve Trading Success

Most people will not wait for the environment to tip itself off. They will walk into the forest when it is still dark, while I wait until it gets light. Mark Weinstein

Never sell the highest high or buy the lowest low of momentum. Look at trading as a game. Do not focus on the dollar amounts gained or lost, that is just the way to keep track of your score. Only take the trades you have the highest amount of confidence in. If you ever find yourself saying I am not really sure then skip it and live to trade another day. 6

Tips to Improve Trading Success

Watch what the price action tells you when highs/lows or support/resistance is broken. Is it behaving correctly? Think for yourself. Learn your analysis and follow it. Make sure you are willing to change your opinion if you are wrong.Every market has their own personality. Make sure you understand the markets you are trading

Tips to Improve Trading Success

Make sure you are making more than your risking on your trades! You want a reward risk ratio of a minimum 1.5 to 1Make sure you are actually exiting for a valid reason. Do not say Oh I am up $400 I am going to close this out Why settle for $400 when you could have held for $1500? You CAN go broke by taking profits! (I am guilty of this saying myself)

Tips to Improve Trading Success

Review your trades and trading strategy EVERY DAY. Write on a piece of paper what you are going to do every day before you start trading. This will help you stick to your trading plan. Write a trading plan.Know when you are having an off day and quit. Dont try to dig yourself out this is a losing proposition. Treat each day as a new day starting from zero.

Analyze Three Components of Technical Analysis

Questions on Tips to Improve Trading Success?

Introduction to Indicators Used

Cannot Use White Background =(Specifications of Natural GasMoves in $10.00 per tick intervalsVolatility Adjustment: Trade 2 contracts of Nat Gas for every 1 Crude Oil (Volatility Adjusting)Impacted by Nat Gas Supply announcement every Thursday at 10:30 AM ESTAnnouncement can cause major fluctuationsFollows trendlines decently, not 100% though. Important to pay attention to the momentum when approaching a trendline. Can help you understand how it will react. Pit Hours: 9:00 AM EST 2:30 PM ESTMajority of good setups occur 30min-1 hour before pit open. Best Divergences: 240 min 60 min and 30 minBest Candlesticks: 240 min 60 minTrade Entries Based on 100, 250 and 500 tick

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ValueBarsSpecifications of Natural GasMoves in $10.00 per tick intervalsVolatility Adjustment: Trade 2 contracts of Nat Gas for every 1 Crude Oil (Volatility Adjusting)Impacted by Nat Gas Supply announcement every Thursday at 10:30 AM ESTAnnouncement can cause major fluctuationsFollows trendlines decently, not 100% though. Important to pay attention to the momentum when approaching a trendline. Can help you understand how it will react. Pit Hours: 9:00 AM EST 2:30 PM ESTMajority of good setups occur 30min-1 hour before pit open. Best Divergences: 240 min 60 min and 30 minBest Candlesticks: 240 min 60 minTrade Entries Based on 100, 250 and 500 tick

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MQ MomentumSpecifications of Natural GasMoves in $10.00 per tick intervalsVolatility Adjustment: Trade 2 contracts of Nat Gas for every 1 Crude Oil (Volatility Adjusting)Impacted by Nat Gas Supply announcement every Thursday at 10:30 AM ESTAnnouncement can cause major fluctuationsFollows trendlines decently, not 100% though. Important to pay attention to the momentum when approaching a trendline. Can help you understand how it will react. Pit Hours: 9:00 AM EST 2:30 PM ESTMajority of good setups occur 30min-1 hour before pit open. Best Divergences: 240 min 60 min and 30 minBest Candlesticks: 240 min 60 minTrade Entries Based on 100, 250 and 500 tick

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MACDSpecifications of Natural GasMoves in $10.00 per tick intervalsVolatility Adjustment: Trade 2 contracts of Nat Gas for every 1 Crude Oil (Volatility Adjusting)Impacted by Nat Gas Supply announcement every Thursday at 10:30 AM ESTAnnouncement can cause major fluctuationsFollows trendlines decently, not 100% though. Important to pay attention to the momentum when approaching a trendline. Can help you understand how it will react. Pit Hours: 9:00 AM EST 2:30 PM ESTMajority of good setups occur 30min-1 hour before pit open. Best Divergences: 240 min 60 min and 30 minBest Candlesticks: 240 min 60 minTrade Entries Based on 100, 250 and 500 tick

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Questions on the Indicators?

General Rules for Stop Placement

General Rules for Stop PlacementYou want to place your stop far enough away that if it is hit, you know you were wrong. But that if it is hit, your not going to break the bank. Typically I place stops above a high or low. Try to place stops beyond some type of support or resistance. Know when high volatility is expected because this can cause massive slippage on your stops.

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General Rules for Stop PlacementWatch what a market does if your stop is hit. Sometimes very easy to spot a run on the stopsThe market is designed to beat you. Make sure your stops are not getting hit at highs or lows. *Go back and analyze all the times you were stopped out. If you had given it 2-3 more ticks would you have stayed in?Review your trades, learn from your mistakes

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Questions on General Rules for Stop Placement?

Understanding Divergences

What is a Divergence?

When the price and indicator are no longer correlated (moving with each other)Price continues to equally high/low prices while indicator weakensThere can be both bullish and bearish divergencesBullish divergence occurs when prices are equal to, or go lower than, previous price lows while indicator goes higherBearish divergence occurs when prices are equal to, or go higher than, previous price highs while indicator goes lower

Trading Divergences

You can trade divergences on both the MQ Momentum and the MACDMQ Momentum will identify smaller divergences as well as large divergences MACD will have less signals, but higher probability (More people watch MACD)

Trading Divergences

You can trade divergences on both the MQ Momentum and the MACDMQ Momentum will identify smaller divergences as well as large divergences MACD will have less signals, but higher probability (More people watch MACD)

Trading Divergences

You can trade divergences on both the MQ Momentum and the MACDMQ Momentum will identify smaller divergences as well as large divergences MACD will have less signals, but higher probability (More people watch MACD)

Trading Divergences

You can trade divergences on both the MQ Momentum and the MACDMQ Momentum will identify smaller divergences as well as large divergences MACD will have less signals, but higher probability (More people watch MACD)

Trading Divergences

You can trade divergences on both the MQ Momentum and the MACDMQ Momentum will identify smaller divergences as well as large divergences MACD will have less signals, but higher probability (More people watch MACD)

Divergence Identification Step 1

Higher High Prices with Lower High Indicator

Divergence Identification Step 2

Divergence Identification Step 3

Entry and Stop Placement

Once the divergence has been identified, entry occurs at any of the following: Equally high/low pricesBroken previous high/low At Significantly OvervaluedOnce Momentum Rolls OverOnce Position has been entered, stop is placed at any of the following: Just beyond previous high/low (5-10 ticks)Just beyond support/resistance

Entry at Equally High Prices

Higher High Prices with Lower High Indicator

Entry on Broken High/Low Prices

Higher High Prices with Lower High Indicator

Entry on Significantly Overvalued

Higher High Prices with Lower High Indicator

Entry After MomentumRolls Over

When Do You Know Your Wrong?

The best divergences move your direction within 1-2 bars of the interval you are trading. If momentum histogram spikes a significant amount on first up/down bar If momentum continues to climb/decline even if prices are significantly over/undervalued

Tips to Improve Success

Make sure market reaches into the overvalued/undervalued price pointsMake sure the histogram AND indicator lines show the divergenceDrill down for your entry.Find a divergence on a smaller timeframe in the same direction of your larger timeframe. This will make your entry more precise. Try trade 2-3 times then quit.

Questions on Divergences?

No Returns

Trading the No Return

A No Return occurs when a market reaches over or undervalued, but momentum histogram stays positive or negative in the opposite direction. Can be both bullish and bearish. Should reverse on same bar, if not, then the second bar at the latest. *Use 5 Bar Analysis Period for ValueCharts/ValueBars

Trading the No Return

A No Return occurs when a market reaches over or undervalued, but momentum histogram stays positive or negative in the opposite direction. Can be both bullish and bearish. Should reverse on same bar, if not, then the second bar at the latest.

Trading the No Return

A No Return occurs when a market reaches over or undervalued, but momentum histogram stays positive or negative in the opposite direction. Can be both bullish and bearish. Should reverse on same bar, if not, then the second bar at the latest.

Trading the No Return

A No Return occurs when a market reaches over or undervalued, but momentum histogram stays positive or negative in the opposite direction. Can be both bullish and bearish. Should reverse on same bar, if not, then the second bar at the latest.

Trading the No Return

A No Return occurs when a market reaches over or undervalued, but momentum histogram stays positive or negative in the opposite direction. Can be both bullish and bearish. Should reverse on same bar, if not, then the second bar at the latest.

Questions on No Returns?

Understanding When a Market is Entering Consolidation

When is Consolidation Occuring?

Watch Higher Highs, Higher Lows / Lower Highs, Lower LowsKeep Track of TrendlinesWatch for Break of Previous Bars High/LowWatch How Price Reacts to Break of Previous Bars High/LowStop breaking and closing above previous high/low

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When is Consolidation Occuring?

Watch Higher Highs, Higher Lows / Lower Highs, Lower LowsKeep Track of TrendlinesWatch for Break of Previous Bars High/LowWatch How Price Reacts to Break of Previous Bars High/Low

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What to do with Consolidation?

Consolidation is a setup for new trade. Know that intraday market is likely to be choppyWatch for breakout for higher intraday volatilityAvoid the chop (Markets are harder to trade during consolidation)Mostly Based off daily price charts

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Questions on When Markets are Entering Consolidation?

Trading the Golf Club and High Flying Flag

Golf Club and High Flying Flag

Golf Club pattern is a bearish continuation patternDown move, followed by 1-4 higher lows, then a break of previous bars low with strong momentum

High Flying Flag is a bullish continuation patternUp move, followed by 1-4 lower highs, then a break of previous high with strong momentum

Golf Club and High Flying Flag

Trade is entered on break of previous bars high/lowStop is placed above/below broken bars high/lowShould at a minimum see test of previous high/lowMarket should move in 1-2 bars max. If not, may be wrong on tradeWant to see entry bar close in your direction. If not, may want to get outWant to see momentum stay in your direction the entire t...

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