fi Con rmed Divergence Divergence • • • • Divergence between price and momentum indicator shows weakening momentum. It is an early indication of potential change in the trend of the timeframe where divergence has formed. Hidden Divergence • Signals a continuation. • Bullish Hidden Divergence - Price makes a higher high & momentum indicator makes a lower low. • Bearish Hidden Divergence - Price makes a lower high & momentum indicator makes a higher high. Regular Divergence • Signals a reversal. • Bullish Divergence - Price makes a lower low & momentum indicator makes a higher low. • Bearish Divergence - Price makes a higher high & momentum indicator makes a lower high. Momentum Indicator • MACD • RSI • Stochastic Hidden Divergence Continuation Bullish Hidden Divergence HL Price HL Momentum Indicator LL LL Hidden Divergence Continuation Bearish Hidden Divergence LH Price Momentum Indicator LH HH HH Regular Divergence Continuation Bullish Regular Divergence Price LL LL Momentum Indicator HL HL Regular Divergence Continuation HH Bearish Regular Divergence Price Momentum Indicator HH LH LH fi Con rmed Divergence Setup Setting up your tools • • • Price chart, momentum indicator & Fibonacci Retracement Momentum Indicator • RSI or MACD (Default Settings) Fibonacci Retracement • Entry -38.2%, 50%, 61.8% • Profit Target - Negative 127.2% (-0.272) and -161.8% (-0.618) The Setup Bullish Profit Target -61.8% -27.2% LH Neckline / LH Entry Zone LL 61.8% 78.6% LL LH LH LL 50% HL Stop Loss Profit Target Neckline / LH Entry Zone Stop Loss The Setup Bearish HH Stop Loss 78.6% HH 61.8% Entry Zone HH 50% Neckline / HL HL HH LH HL HL Profit Target -27.2% -61.8%% Stop Loss Entry Zone Neckline/HL Profit Target Setup • Do a proper multi timeframe analysis (Top - Down). • Mark off level of support and resistance (Structure S/R, Big Figures, Trend lines, Fibonacci, MA) on the higher timeframe (4H, Daily, Weekly) • Higher timeframe should have a candlestick rejection at the predetermined support and resistance level and confirmed divergence setup on the lower timeframe • Execution is on the lower timeframe. • 4H - Candlestick Rejection • 15M - Confirmed Divergence Setup • Daily - Candlestick Rejection • 1H - Confirmed Divergence Setup • Weekly - Candlestick Rejection • 4H - Confirmed Divergence • Wait for price to impulsively break the neckline to confirm the setup • If you are trading the lower timeframe (1H/15M TF), make it a routine to check high impact news for the day that could affect the setup Rejection at support level Potential Confirmed Divergence Setup Neckline/LH Bullish Divergence LL HL Confirmed Divergence Setup Neckline/LH Bullish Divergence LL HL Once we see price starts to pullback, we can now plot our fibonacci retracement From point A to poin B B Neckline/LH Bullish Divergence A Neckline/LH Bullish Divergence Rejection at resistance level HH Confirmed Divergence Setup Neckline/HL Price impulsively broke the neckline, we will now wait for a pullback Bearish Divergence LH A Neckline/HL B Once we see price starts to pullback, we can now plot our fibonacci retracement From point A to poin B Bearish Divergence Neckline/HL Bearish Divergence Entry • We will use limit order to enter the trade. • We will wait for the initial impulsive move to break the neckline to confirm the setup • Wait for the obvious pullback before plotting fibonacci retracement. • We will set limit orders at 50% or 61.8% fibonacci retracement • Placing your entry at 50% will give you a lower risk to reward ratio but it will be triggered more than placing your limit order at 61.8% retracement. • Placing your entry at 61.8% will give you bigger risk to reward ration but it will be triggered less than placing your limit order at 50% retracement. Neckline/HL We can place our buy limit order either at 50% or 61.8% retracement We can place our sell limit order either at 50% or 61.8% retracement Neckline/HL Stop Loss • We will put our stop loss at a level where our setup is proven wrong. • Do not place your stop loss according to your own pain threshold. • We will protect our stop loss at level of support and resistance. • Do not use fix number of pips/points as your stop loss. • If you o not place your stop loss where your setup is proven wrong, you will be tempted to enter the market again because your setup is not yet invalidated. Neckline/HL We will place our stop loss below the low of point A A Stop Loss We will place our stop loss above the high of point A A Neckline/HL Stop Loss Pro t Target • Default Target • -27.2% • -61.8% • We can also use structure support and resistance level. • If we see confluence of support and resistance level around our default target (Either -27.2% or fi -61.8%), we can use that as our profit target. • -27.2% target will be hit more often than -61.8% and it will give you a minimum of 1:1.4 / 1:1.5 risk to reward ratio. • -61.8% target will be hit less than the -27.2% target but it will give you higher risk to reward ratio. The minimum target for -61.8% is 1:2.1 risk to reward ratio. -27.2% target hit but wasn’t able to reach -61.8% target Structure Resistance Stop Loss Stop Loss -27.2% Target hit and price reversed Trade Management • Trade management is important to your trading but is even more important to do it properly. • We have to understand that the market is dynamic and not static. • Move your stop loss to a point where the setup would be invalidated. • Use structure support and resistance to protect your stop loss. • Do not use breakeven (entry) level unless it is above swing point. Once we see price reached point B, We will move our stop loss below point C to reduce our risk. B C Stop Loss Stop Loss Stop Loss C Stop Loss B Once we see price reached point B, We will move our stop loss above point C to reduce our risk. Examples Weekly & 4H Weekly / 4H Stop Loss Price still in bearish trend that means we can still look for short trades. Stop Loss Neckline Entry Once price reached this level, adjust stop loss. Price printed a bearish rejection at resistance. Resistance Target -61.8% with confluence of structure support Bearish Divergence Weekly / 4H Target Support Price printed a bullish rejection at support. Neckline Once price reached this level, adjust stop loss. Price still trending higher Entry Stop Loss Stop Loss Bullish Divergence Weekly / 4H Support Target Price printed a bullish rejection at support. Price still trending higher Neckline Entry Stop Loss Stop Loss Bullish Divergence Once price reached this level, adjust stop loss. Weekly / 4H Stop Loss Price is making lower highs Price printed a bearish rejection at resistance Stop Loss Entry Resistance Neckline Target Bearish Divergence Once price reached this level, adjust stop loss. Weekly / 4H Stop Loss Stop Loss Entry Price printed a bearish rejection at resistance. Horizontal resistance in confluence with 61.8% retracement Once price reached this level, adjust stop loss. Neckline Target Resistance Bearish Divergence Weekly / 4H Target Neckline Once price reached this level, adjust stop loss. Entry Support Stop Loss Price printed a bullish rejection at trend line support. Stop Loss Bullish Divergence Examples Daily & 1H Daily / 1H Price still in a down trending market, creating lower lows and lower highs. Stop Loss Price printed a rejection candlestick at resistance level. Stop Loss Entry Neckline Once price reached this level, adjust stop loss. Resistance Target Bearish Divergence Daily / 1H Target Support Price established a support level and printed a rejection candlestick Neckline Once price reached this level, adjust stop loss. Stop Loss Stop Loss Bullish Divergence Entry Daily / 1H Stop Loss Stop Loss Once price reached this level, adjust stop loss. Entry Neckline Price still moving down creating lower low and lower highs. Price printed a rejection candlestick at resistance level. Target Resistance Bearish Divergence Daily / 1H Stop Loss Stop Loss Entry Price printed a rejection candlestick at resistance level. Once price reached this level, adjust stop loss. Neckline Resistance Target Bearish Divergence Daily / 1H Stop Loss Stop Loss Price printed a rejection candlestick at resistance level. Entry Once price reached this level, adjust stop loss. Neckline Resistance Target Bearish Divergence Examples 4H & 15M 4H / 15M Target Support Price printed a rejection candlestick at support level. Once price reached this level, adjust stop loss. Neckline Entry Stop Loss Stop Loss Bullish Divergence 4H / 15M Target Neckline Once price reached this level, adjust stop loss. Entry Stop Loss Support Price printed a rejection candlestick at support level. Stop Loss Bullish Divergence 4H / 15M Price printed a rejection candlestick at support level. Stop Loss Resistance Stop Loss Entry Once price reached this level, adjust stop loss. Neckline Target Bearish Divergence 4H / 15M Target Once price reached this level, adjust stop loss. Neckline Entry Stop Loss Stop Loss Support Price printed a rejection candlestick at support level. Bullish Divergence REMINDERS • Do proper top down analysis. • Define certain support and resistance level. • Wait for price to form divergence around your pre-defined support and resistance level. • Wait for price to impulsively break the neckline (prev higher low / lower high) to confirm the setup. • Once we see price starts to retrace, we can wait for entry using fibonacci retracement (50%-61.8%). • Once triggered, put your stop loss above or below invalidation level. • Default Target: -27.2% and -61.8% • Move your stop loss above or below swing point, not on break-even level. • Rinse and repeat.
