Indicator divergence
With a vast following of market speculators, we receive a consistent inflow of questions and comments about the market.
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 one's overall performance.
Indicator divergence is one such stack-able edge that at times is unmistakably present to one's 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 a 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”
In the chart above, one can identify 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.
Indicator divergence, BTC/USDT, daily chart, October 11th, 2019, “positive indicator divergence”:
Five days later the bitcoin market had advanced by 1,000 points.
11/16/2019, BTC/USDT, daily chart, “price trending down”:
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”:
The following day immediate price advances allowed for taking the risk out of the trade. What is left is potential (green up arrow) without risk. A trader's 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 overtaking 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 one's edges as clearly as possible and then executing a trade upon its appearance without hesitancy, one assures a consistent outcome.