Note: This trading system is my attempt to self-study Convergence / Divergence. The system calls for looking for Convergence / Divergence MACD entry signals on the daily chart. A long-term trend filter ensures that entries are only allowed in the direction of the underlying trend. Once an entry circumstance is identified, we wait until a candle closes over the 9-day EMA to confirm the trend strength.
Category: Divergence into Trend-Following
Type: 100% Systematic (Assuming Convergence/Divergence is systematizable)
Timeframe: Daily
- Indicators: 9EMA, 100EMA, 200EMA, MACD
- Entry Circumstance: Identify Convergence or Divergence scenario in line with the Long-Term Trend. Then look for entry based on the Entry Technique.
- Entry Technique: To go long, trigger candle closes above 9EMA. Entry is 5 pips above the trigger candle
- Long-Term Trend Filter: 100 & 200 EMA
- Initial S/L: 1*ATR below the trigger candle
- Take Profit: (1) Opposing Convergence / Divergence, (2) Fractal-Based Trailing stop.
What is divergence and convergence? The definition of converge is to come together, for example the lines converge at this point. To diverge means to move or draw apart. When a currency pair is converging, it means that price and momentum are in sync with each other and price is moving at a sustainable pace. When a currency pair is diverging, it means that price and momentum are NOT in sync with each other and action is moving in a less stable/sustainable pace and the likelihood of a correction or even reversal increases. The divergence-convergence analysis basically measures the power a currency has at one point in time with another point in time and then compares the two with each other. The analyst can then judge whether the currency is showing signs of strength or weakness. – Chris Svorcik
External Sources:
- How to Predict the Future: The Power of Divergence – Chris Svorcik
- Trading with MACD – by Kevin Riordan
Uncharted Terretory - SkratchFX 