The setups I include on this blog are used in conjunction with the 3/10macd and the criteria I ascribe to it as a way to alert me to an existing condition of price. The key concept to take away from this blog is that I try to anticipate what will happen on the higher time frame by using a faster time frame to trigger the trade setup. I do not trade a "system" I use two indicators to clue me in to price conditions. Please read the Disclaimer located in the sidebar of this site. I can be contacted via email at toddstrade@gmail.com
I am always open to questions, comments, or suggestions on how to improve this blog.


Tuesday, July 28, 2009

wait for it

I wanted to highlight a momentum buy divergence that occurred this morning which you'll see all the time when using the 3/10 oscillator (most oscillators really), and which can fake you out if you're not patient when acting in real time.
Looking at the "Hard Right Edge" of the chart, we see a lower low in price combined with a higher low in the momentum reading, giving us a momentum buy divergence. But, based on that, I'm not just going to buy at any given price. I'm going to let price prove the divergence. So, in this particular example, I'm going to wait to see if price will continue to test higher, at or above the $97.50 horizontal line.
This morning price rolled over that momentum divergence. Price then put in a lower low, momentum went lower, but again put in a slightly higher low. At this point we have a hammer candlestick on volume right on top of our keltner channel; A confluence of signals that are telling you that THIS may be the actionable buy divergence.Of course we're not going to be basing our decisions on one time frame though, right? So, if a buy divergence is suspect I'll be looking at a faster chart for entry and/or confirmation.
From the first chart above, my attention was drawn to a divergence, but looking at the one minute chart I was thinking price may go lower because up to that point we only had two impulse pushes down so far, so I was sitting on my hands waiting for price to prove itself higher (above previous support which is now acting resistance), or wash out into a third push down.
Price did end up washing out into a 3rd push lower, completing our momentum buy divergence.

3 comments:

Day Tradr said...

Todd:

What do you mean by 'roll over' that you mentioned on the 2nd chart of this post?

Thanks,
Day Tradr

todd said...

Hi DayTradr,
I just mean that momentum progresses higher, but then the next candle brings lower prices and therefore lower momentum.
This is illustrated with the macd's histogram as it becomes more positive on each bar, but then as price turns down the histogram starts building more negative readings.
I hope this is clear, if not let me know and I'll try to illustrate myself better.

-todd

Day Tradr said...

Thanks Todd. Learning new ways to use the 3/10 oscillator from your blog. I have been using it only for divergences.