How To Trade a Divergence Properly — Transcript

Full transcript

1. 0:00I get this question all the time is a
2. 0:03Divergence the same thing as a reversal
3. 0:05well a Divergence can be an indication
4. 0:07of a reversal but I've got just this
5. 0:10tiny extra sweet bit of secret sauce to
6. 0:14add onto every one of your divergences
7. 0:16welcome back to the channel everybody my
8. 0:18name is Artie and this is the moving
9. 0:20average a show where we discuss
10. 0:21everything day trading to keep you
11. 0:23profitable let's not waste anybody's
12. 0:25time and jump right into trading view
13. 0:26okay I've currently got NASDAQ 100 on a
14. 0:3015 minute time frame zoomed out to about
15. 0:32September 6th it's currently September
16. 0:3414th now if you remember my other video
17. 0:36where I said keep it simple let's drop
18. 0:39some trend lines so we were in an
19. 0:41uptrend we Consolidated for a bit and
20. 0:43then went down in a downtrend then we
21. 0:45were in an uptrend now if you're asking
22. 0:47yourself how are you how come the bottom
23. 0:49is not touching the downtrend channels
24. 0:51people channels if you click on your
25. 0:53tools and click on Parallel channels you
26. 0:56will see draw it on that trend line and
27. 0:59price was in a downtrend right there and
28. 1:01then if you keep going it was in a
29. 1:03channel so it was in the upper part of
30. 1:05this channel then in the lower part of
31. 1:07this channel then broke through the
32. 1:09lower part of that channel and started a
33. 1:11new uptrend but the areas that I want to
34. 1:13focus on in this video are areas where
35. 1:15price reversed where we are looking for
36. 1:18divergences so all you got to do is type
37. 1:21in RSI select the standard one from
38. 1:24Trading view not by anybody just
39. 1:26relative strength index okay now if
40. 1:28you're like me you can see divergences
41. 1:31really easily if you're not like me let
42. 1:33me Point them out to you this right here
43. 1:36price made a high and then failed to
44. 1:39make a higher high that's where the
45. 1:40market structure was broken that's not
46. 1:42what we're looking for what we are
47. 1:44looking for is price making a higher
48. 1:46high and at that point rejecting right
49. 1:48and then we go all the way down here to
50. 1:50the RSI and we look for a Divergence in
51. 1:53the RSI if we got a Divergence trend is
52. 1:56most likely to reverse on you but then
53. 1:58you're probably saying to yourself Artie
54. 2:00why did you pick that one because that
55. 2:02one's so obvious why didn't you pick the
56. 2:04previous Divergence because it's
57. 2:06obviously there yep that's where my
58. 2:08secret sauce comes in don't
59. 2:11actually millions of people are probably
60. 2:12going to see this video so let me zoom
61. 2:14in ready there was a Divergence here
62. 2:16right price made a higher high but the
63. 2:19RSI made a lower high it's your first
64. 2:22Divergence how come you're not going to
65. 2:23take that short position because my
66. 2:25friend you have not added the secret
67. 2:27sauce the standard levels of the RSI are
68. 2:3070 on the overbought end and 30 on the
69. 2:33oversold end what I would like to see
70. 2:35before I get into any trade let me Zoom
71. 2:38this in what I want to see is not only a
72. 2:40Divergence but I want to see the first
73. 2:43Divergence out of that range and I want
74. 2:46to wait until we've gotten something in
75. 2:50between the 70 30 range like this so
76. 2:54once we get out of the 70 30 range
77. 2:56meaning that the price is overbought it
78. 2:58will continue to be overbought because
79. 3:00it's a momentum indicator once price
80. 3:02loses that momentum and gets back in to
81. 3:05the normal range I'm gonna create a
82. 3:08vertical line right here and that's
83. 3:10where I want to get in in on my trades
84. 3:12something like that and then you're
85. 3:13gonna Trail your take profits to the
86. 3:15previous low so essentially if it hits
87. 3:17there take a little bit off the table
88. 3:18move your stop loss to break even move
89. 3:21your next profit Target to there you're
90. 3:23looking at another swing move your next
91. 3:25take profit to there looking for another
92. 3:27swing every single time you're taking a
93. 3:28little bit off the table and moving your
94. 3:30stop loss more and more and more into
95. 3:31profit then right there you're almost
96. 3:33out of your trade at your original take
97. 3:35profit level or your Maximum take profit
98. 3:38level I should say and then at that
99. 3:39point price starts going against you you
100. 3:41can see using that strategy you got a
101. 3:43one to four with a 50-point stop loss on
102. 3:45NAS which is like just perfect now let's
103. 3:48look at the next example here is where
104. 3:50Market decided to reverse now let's look
105. 3:52for divergences so we had a lower low
106. 3:54then we had another lower low then we
107. 3:56had a monstrous Wick what you can do
108. 3:58instead of measuring the extreme of the
109. 4:00wick is like half of it because there's
110. 4:01less volume in these Wicks there's more
111. 4:03volume in the body so let's just do it
112. 4:05at where the parallel channel was now
113. 4:06let's look at the RSI we did not have a
114. 4:09Divergence here we made lower lows and
115. 4:11low lower lows on the RSI good to go
116. 4:13from here to here no Divergence we made
117. 4:16a lower low on the RSI here is where we
118. 4:18started making that Divergence you can
119. 4:20see from this point to this point
120. 4:23Divergence so on that rejection candle
121. 4:26huge Wick rejection where inside of that
122. 4:2970 30 range good to go long position
123. 4:31stop loss at your channel 50 points 50
124. 4:34points on indices is a pretty decent
125. 4:36stop loss it'll keep you out of trouble
126. 4:38when it comes to spreads any type of
127. 4:40slippage and so what you're going to do
128. 4:42is originally set like a one to two
129. 4:44because that's super safe and then
130. 4:46you're gonna Trail up to the previous
131. 4:47structure up at the top so like right
132. 4:49there that makes sense with the
133. 4:50liquidity grab above there then next up
134. 4:52here then next up here then next up here
135. 4:55all along the way you are trailing your
136. 4:57profit with the current trend line so
137. 4:59with something like that once you got to
138. 5:01one to two risk to reward right about
139. 5:03here you would have moved your stop loss
140. 5:04to in profit and you would have just
141. 5:06trailed it up getting to the next level
142. 5:07and the next level this one got you a
143. 5:09one to three Divergence isn't trend
144. 5:11lines are like my favorite way to trade
145. 5:14it just you have to wait for them you
146. 5:16have to wait for the divergences to form
147. 5:18within that 70 30 range I really hope
148. 5:20you guys enjoyed this bottle of Artie's
149. 5:22secret sauce