MetaTrader Indicators

Principles of basing a Trading Strategy on Divergence Metatrader Indicators

We’ve already described the concept of divergence and how we offer to define it in the article. That’s why let’s skip the definition.

In my opinion, there is no indicator that could precisely (100%) predict behavior of the market. Divergence is quite a strong signal, but I wouldn’t make a decision basing only on one indicator. If you test divergence indicators in visual mode, you can notice that indicator predicts behavior of price to high precision (up to 90%) in some areas. But at the same time the number of false entries is high enough in other areas.

Almost all divergence metatrader indicators show divergence of oscillator and price, and almost all oscillators work well during a flat market and have high inaccuracy if there is a trend. It is not difficult to understand that divergence metatrader indicators give more precise signals during a flat market. We’ve received many letters with such questions: “What is the best divergence indicator and what currency and timeframe you recommend to use it for?” On the basis of aforesaid you can make a conclusion that there is no unambiguous answer on such questions. So, how to use divergence indicators correctly?

There are many methods, but I would like to offer a technique, developed by me several years ago. You should choose several currencies for trade, preferably with low currency correlation. The number of currencies depends only on your experience and attentiveness. For starters, we should find out the phase of the market on the given currency: flat or trend. There are many techniques in the case of using divergence and in the case of determining the phase of the market, and I don’t know which one is the best. But, in my opinion, you can precisely determine the phase of the market, only analyzing several timeframes.

For example, m15  H1  H4 D1 timeframes. You can either make visual analysis or use indicators. We’ve developed HeikenAshi MultiTF and Trend MultiTF indicators, which are perfect for this purpose,

Pic. 1 Metatrader Indicator HeikenAshi MultiTF

but you can also use oscillators (RVI, PowerRvi, etc.)

Pic.2 PowerRVI Metatrader Indicator

and analyze their direction in all timeframes; if directions coincide in higher timeframes, then it is possible to say with high probability that we are in the phase of trend. If oscillators are pointed towards each other, the market is in the phase of flat.

Having analyzed all currencies, selected for trade, we choose currencies, which are in the phase of flat. Divergence metatrader indicators signals on these currencies will be more precise. We can also use divergence indicators on trend currencies, but we will ignore the signals, directed against the trend. Signals, directed along the trend, will show you exit points of currency from retracements.

BJF Trading Group inc.

http://iticsoftware.com