How to trade with an oscillator

[timepass]

Dear timepass,
If i have correctly understood Smart's methodology,between point 1 & 2,if the Stoch goes to 20 or near( O/S),it is not correct to call it divergence.
I am unable to catch yr point correctly.

Yes. What I meant was that the momentum is very strong and there is a good possibility that the divergence may not work out or may need much higher levels to work out.

 

[Smart_trade]

I am going on a short vacation. Will be back on Monday...will answer questions, if any,on my return.

ST

 

[murthyavr]

Pardon my drawing skills, but I have tried to illustrate using your own chart. I have tried to illustrate the other possibility.

1) Now, you have noticed the divergence using 2 crossover points (bullets) on stochs coinciding with 2 pivots on the price. It is not a given fact that after 2 such points the bearishness will set in. If the momentum is strong enough, the price may carry on upwards, but if the stochs make another crossover point below the 2nd one, then it makes for the third bullet on divergence.

2) Between bullet no. 1 and 2, the stochs did not go below 30/20, they reverted from the neutral zone. This is a strong signal of trend continuation.

Timepass,

Your analysis is good, but here there are one or two points I want to make.

1. Nifty has been in uptrend since 19th Dec, consistently making higher lows
and higher highs. So any divergence indicating a downside would be a short-
lived one compared to the odds in favour of upside.

2. If we wait for the confirmation in terms of a third bullet, chances are that
we may be missing a very good move. There are several instances where
the divergences occurred on two peaks/lows worked well. Of course, they
work well in the direction of the trend only, often.

3. The stoch should not enter the other zone between two peaks/lows,
otherwise it is not considered to be a divergence as per ST. The same point
has been brought out by Rangarajan also.

If shorting is to be done based on divergence between the two peaks:
4. If you take the trendline breakout method of SG to find out the probable
time of taking the trade, you will observe that we have to take the trade
when the stoch is in OB zone, because it will be in the OB zone only when the
trendline is broken. Is it advisable to take a short trade while the stoch
is still in OB zone? (Frankly, I don't know the answer!)

 

[anjanbm]

Dear ST,
Your comments on NF daily stochastics staying in OB for 10 days and for dissipation of this bullishness how many more bars it may take.
And also your comments on todays in 5 min NF nearly 18 bars have stayed in OB. Should we wait for osc to come to neutral and give a buy signal, at this point can we enter long. Please reply at your free time.
regards,
anjanbm

 

[timepass]

Ranga, can you post your updated 4hour chart please.

 

[rangarajan]

Ranga, can you post your updated 4hour chart please.

Dear timepass,
Attached as required.Red & Gold r SMA 21 & 38 respect.
But,have u not downloaded the FREE DEMO MT4.
I had posted the link in this thread.

 

[timepass]

I have MT4.. just asked. I personally don't understand the 4h TF for nifty.

So, here the divergence faked out. I wonder how many saw it and traded for short side.

 

[murthyavr]

I have MT4.. just asked. I personally don't understand the 4h TF for nifty.

So, here the divergence faked out. I wonder how many saw it and traded for short side.

Timepass/Rangarajan,

I checked up 4H charts of NIFTY as well as NF-1 for the above period, with
the actual data and I don't find any divergence..

The MT4 data is slightly different from the actual data (each quote has a diff
of about Rs.5) - this data difference might have caused the above divergence.

The stoch has not yet come out of OB zone, after it made an entry through
17.01.2012 03:30 candle in 4H charts. So far, it has completed about 11 bars
in the OB zone!

 

[timepass]

 

[anjanbm]

Dear ST,
Today as per qualifier on 5min NF osc staying more than 5 bars in OB and coming to neutral and giving a buy sgnl. I have encashed nearly 20 points for todays trading thnk you.
regards,
anjanbm