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Strategies & Market Trends : P&S and STO Death Blow's -- Ignore unavailable to you. Want to Upgrade?

To: lurqer who wrote (9615)	10/7/2002 2:25:10 AM
From: ig	Read Replies (2) \| Respond to of 30712

"why do you believe that this Divergence has the same strength in the waning aftermath of a bubble decline as it did for a bear correction within a secular bull?? I don't. I don't know how strong it will be. The way to play them is to get in and see. If they don't followthrough, you just get out with a small profit. People get mixed up between "probability of success" and "extent of reward." I was reading Bill O'Neil (of IBD fame) last night. He was talking about his famous "cup with handle" pattern. He siad that a common question with beginners is: "Why not buy lower in the cup? Why wait for the breakout?" His response is that even though the extent of the reward would be greater that way, the chances of it actually happening (this is what some traders call the "hit-rate") are much lower. So, you have to distinguish between hit-rate and the extent of the reward if it "hits." You are asking me why I think the divergence has a certain "strength." Well, do you mean the hit-rate (probability of it happening at all), or do you mean the extent of the move if it hits? I use my "macdiv" signal the opposite way that O'Neil tells investors to use his cup-with-handle pattern. I try to buy extra low. I don't mind that it doesn't work out that often (hit-rate is low), because I still make money on it even if it fails. It remains a profitable daytrade instead of becoming a huge swingtrade or position-trade. Macdiv is my favorite signal, in any timeframe. I use it intraday all the time, with great pleasure and success. When I see it setting up on the dailies and weeklies, I like it even better. If anyone wants to know more about macdivs, check out page 135 of Alexander Elder's "Trading for a Living." He also gives illustrations of various "classes" of divergences and their relative strengths. ig

To: lurqer who wrote (9615)	10/7/2002 2:26:28 AM
From: ig	Respond to of 30712

Want to add one thing: "why do you believe that this Divergence has the same strength in the waning aftermath of a bubble decline as it did for a bear correction within a secular bull??" I just want to acknowledge that you've made a very good distinction regarding the bear correction. That might well have an important effect, I just don't know what it is. Your implication is that it might weaken it. For all I know, you could be very right about that. I'm still playing it, though. Mr. Market pays me to play them.. :-) ig