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Strategies & Market Trends : MDA - Market Direction Analysis
SPY 652.56-1.5%Nov 20 4:00 PM EST
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To: SpongeBrain who wrote (2141)12/16/1998 10:49:00 PM
From: John Pitera  Read Replies (2) of 99985
 
Obsessive--Momentum divergence explained---- Debra gave a very nice post of how to find MACD divergence here is here post, and may I point out that Donald Sew who has an advanced technical methodology firmly in grasp has pointed out that her post was a nice descriptive summation.

Message 6861254

I have used momentum divergences since 1984 and they can also be
detected on Rsi's, staight Rate of Change Oscillators, and momentum
indicators.

2 points to note.

1) the units of time used to develop your chart tend to correspond
to the magnitude and timing of what type of change in price to expect.
When you are looking at a daily Macd and see a divergence it can take
a number of days for that divergence to play itself out in price.

a 30 minute chart will resolve its divergence in a few days and the price move is much less on a 30 minute divergence than on a daily or
monthly.

2) 2 or 3 divergences can occur (some times even 4) where you have
for example a higher high in price with a lower high on the momentum
indicator. (Macd, Rsi, Roc) These can be little nuggets of Gold to
pan for as they tend to mean that the payoff of the divergence (the
price moving in a change of trend) is closer and the magnitude of
the price movement can often be larger, as in a sense you have a
coiled spring that has built up more strength which must be dissipated and so the price moves more powerfully in the opposite direction of
the trend that the divergence was built up in.

These concepts are 50 times easier to see with graphics, and I hope to get my web site up soon to be able to post this type of thing to it.

Best Regards,

John
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