Video: Trading Divergences in the SP500

Sep 30, 2009: 9:21 AM CST

Adam Hewison released an educational video this morning entitled “How to Trade Divergences in the S&P 500“.

Like me, Adam is using the MACD (standard settings) to highlight non-confirmations between price and the indicator.  Divergences occur when a market makes a new swing high but the MACD indicator (or other oscillator) does not make a higher high.

Image links to free video page.

Adam defines divergences, and shows a few recent examples, including a failed divergence.  He then moves the chart in closer to look at the current MACD/Momentum divergence (as I’ve been describing) in the S&P 500 recent highs which – under classic assumptions – would be a non-confirmation forecasting a pullback/reversal.

I explain these concepts and you know I’m a big fan of divergences (though I use faster settings “3, 10, 16” in my MACD), but sometimes it can be helpful to see the concept presented from a different perspective or with a video, and I’ve always thought Adam does a good job with his quick commentaries.

Thanks again to Adam for the video update!

Corey Rosenbloom, CMT

8 Comments

8 Responses to “Video: Trading Divergences in the SP500”

  1. banco Says:

    Corey. I use 3.19.9 MACD FOR BUY SIGNALS AND 19;39;9 MACD for sell signals. I am very interested why you use 16 as Signal line. Get my settings from a book by Gerald Appel himself. Experimentinting with it and would like to hear your reasons. According to Appel he use anything between 6 and 9 for his signal line

  2. Corey Rosenbloom, CMT Says:

    Hey Banco,

    I've read the book – Technical Analysis – by Appel and it is indeed a great book.

    What I'm using technically isn't the standard MACD, but a twist on it as taught to me by Linda Raschke of LBR Group.

    Instead of using exponential averages (like MACD), we use simple moving averages in the “3/10 Oscillator” which I show only in TradeStation charts (can't be replicated exactly on StockCharts.com).

    Also, we're not reading it like a MACD – the 16 signal line is similar to the regular 3/10 on a higher timeframe. So, we refer to it as a “Trend Line” as opposed to a signal line and are not looking for crossovers.

    We're mainly interested in New Momentum highs or lows, and in divergences. Linda uses the 3/10 a lot more than I do, in terms of she uses it for actual pattern recognition in the oscillator itself for trade set-ups whereas I use it almost strictly as a momentum oscillator.

    Here's a post detailing the 3/10:
    http://blog.afraidtotrade.com/how-do-i-create-t

  3. banco Says:

    Hi Corey

    Thanx for the reply. Only came accros your website today and will
    follow it in future

    Regards

    Stef @Banco

  4. Paving Raleigh Says:

    This is the best post on this topic i have ever read.

    regards
    Andrew dong
    ______________________________________________

  5. Moving to the Carolinas Says:

    I posted your article to my myspace profile.

    Have a nice day
    Davis william
    ______________________________________________

  6. Jacuzzi Filters Says:

    I loved the way you exlained things. Much better many here

    regards
    Lucky Sam
    ______________________________________________

  7. Footwear Search Firms New York Says:

    Hello Guyz I added this post to my article site. You can view this here.

    respect
    Alessandro Jayson
    ______________________________________________

  8. Footwear Search Firms New York Says:

    Hello Guyz I added this post to my article site. You can view this here.

    respect
    Alessandro Jayson
    ______________________________________________