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Stochastics Divergence System

Chence27

Active member
This strategy is based on stochastics divergence and overbought/oversold levels, with a few other indicators for confirmation. The signals have a high accuracy rate. I trade this on a one minute chart.

The indicators:
The main play is to trade divergences, both regular and hidden. Short term divergences are found on the Stoch(9,3) and should be confirmed with a divergence on Ironrod SMI, although a divergence on the stoch is almost guaranteed to be on the Ironrod SMI. On the other hand, many times the Ironrod SMI picks up divergences more clearly than the stoch and sometimes it picks up divergences when there are none on the stoch, and these can be traded too, but the accuracy rate is higher with both indicators picking up the divergence. Longer divergences are found on the stoch(60,10) and don't need confirmation from any other lower indicator.

EDIT: On stochastics (60,10) I am now using the faster k line (10) for divergences rather than the slower d line (60) because the d line lags way too much and the k line picks up way more divergences. The accuracy of the k line divergences is scary! At least on es.

The highest probability divergence on stoch is when the higher high is above the overbought level and the lower high is below the overbought level, or when the lower low is below the oversold level and the higher low is above the oversold level. The greater the distance between the highs or lows, the higher the probability of the reversal (regular divergence) or continuation (hidden divergence).

Another thing to look out for is when price is in a tight range, not able to make higher highs or lower lows (the swing highs or lows bounce at the same price), but stochastics or Ironrod is making higher highs or lower lows. This has a lower probability of resulting in a reversal or continuation than the regular and hidden divergences, but can still be valid.

Plays can be made with overbought and oversold levels on the stochastics as well. If there isn't a strong trend and price action is in more of a range, matching overbought or oversold levels on both stochastics can be a high probability reversal trade. Pullback plays can be found when stoch(60,10) is at overbought or oversold for a while (more than 30 minutes perhaps) and stoch(9,3) quickly dips to the opposite oversold/bought level.

Confirmation for all of these trades should include a signal from Top Breakout indicator, a change in color (green to red or red to green) of the SMI line on the Ironrod indicator, an arrow from the trend reversal indicator, and a change in color of the Supertrend which paints the candles.

I also draw trendlines and support and resistance lines as part of my strategy and use standard deviation channels to help spot potential reversal areas.

Using the same system on a five minute chart will help spot higher probability and longer lasting moves.

This seems to work particularly well on futures, perhaps because they move more than most stocks.

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Robster021

New member
VIP
Hi, thank you for taking the time to share. I'm going to do some backtesting. If possible could you please share your chart. Thanks
 

Chence27

Active member
Hi, thank you for taking the time to share. I'm going to do some backtesting. If possible could you please share your chart. Thanks
Sure. http://tos.mx/FWhBB7E

I got this strategy from Day Trader Rockstar by the way. His youtube channel has some really good videos explaining the strategy. It also incorporates trend lines, which I also use but didn't mention in the first post. I also use standard deviation channels to spot likely reversal areas.
 
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Gvaro

New member
VIP
Sure. http://tos.mx/9BCGh1A

I got this strategy from Day Trader Rockstar by the way. His youtube channel has some really good videos explaining the strategy. It also incorporates trend lines, which I also use but didn't mention in the first post. I also use standard deviation channels to spot likely reversal areas.
Hi, @Chence27 could you please share your chart one more time apparently there is a error with the last one. Thanks!
 

Chence27

Active member
I've noticed that hidden divergence signals tend to be higher probability than regular divergence signals, which are still pretty high probability in the right market conditions (regular divergences during long strong trends can be a bit more risky). I suppose that's because the trend is your friend.
 

Chence27

Active member
@JohnsonM Yes the arrows repaint. They are the trend reversal indicator. But arrows at divergences usually don't repaint because these divergences are so high probability. An arrow after a divergence signal tells me it's the right time to enter the trade. Sometimes an arrow doesn't appear at a divergence, so in that case I wait for a color change in the Supertrend CCI which paints the candlesticks.
 

Chence27

Active member
Check the trend reversal indicator thread in this forum. I'm sure someone has asked that same question there and you might find some code that you could add for an alert.

But I wouldn't worry about the arrows too much. A lot of times they repaint. Focus on the divergences. Sure, it requires more work than simply listening for an alert, but it's far more rewarding.
 

Chence27

Active member
I've taken a multiple time frame approach to this strategy where I'm finding divergences on the 1 hr, 30 min, 15 min, 5 min, 3 min and 1 min. The higher the time frame of the divergence, the more reliable the signal on the smaller time frames and the bigger the move. I've also added a stochastics(14,3) and (40,4), which sometimes spot divergences that the ones I've been using do not.

I keep the higher time frame charts (1 hr, 30 min and 15 min) in the "charts" tab and the lower time frame charts (5 min, 3 min and 1 min) in the "flexible grid" tab so I can easily switch between them when trading.

Here's the new lower time frame grid. http://tos.mx/t8GLJXR

For the higher time frame grid, simply use the same style but change the time frame.
 

Tradervic

Member
VIP
I've taken a multiple time frame approach to this strategy where I'm finding divergences on the 1 hr, 30 min, 15 min, 5 min, 3 min and 1 min. The higher the time frame of the divergence, the more reliable the signal on the smaller time frames and the bigger the move. I've also added a stochastics(14,3) and (40,4), which sometimes spot divergences that the ones I've been using do not.

I keep the higher time frame charts (1 hr, 30 min and 15 min) in the "charts" tab and the lower time frame charts (5 min, 3 min and 1 min) in the "flexible grid" tab so I can easily switch between them when trading.

Here's the new lower time frame grid. http://tos.mx/t8GLJXR

For the higher time frame grid, simply use the same style but change the time frame.
@Chence27, I think you put together an excellent system for trading futures. Thank you. Question on the TopBreakout Indicator on your charts. It doesn't have the blue lines to signify the stop point. I can't seem to turn it on on mine. Do you know why?
 

Chence27

Active member
@Chence27, I think you put together an excellent system for trading futures. Thank you. Question on the TopBreakout Indicator on your charts. It doesn't have the blue lines to signify the stop point. I can't seem to turn it on on mine. Do you know why?
If you're talking about the stop loss line, it can be activated in the indicator settings. I use my own stop loss. I actually trade futures with Sierra Chart so I really only use the stochastics. I don't have the other indicators in Sierra, but they aren't really necessary. I also trade divergence with cumulative delta, which TOS doesn't have.
 

Tradervic

Member
VIP
If you're talking about the stop loss line, it can be activated in the indicator settings. I use my own stop loss. I actually trade futures with Sierra Chart so I really only use the stochastics. I don't have the other indicators in Sierra, but they aren't really necessary. I also trade divergence with cumulative delta, which TOS doesn't have.
Yes, I should be able to activate the stop loss line but for some reason, it doesn't appear. If I open a brand new chart, I can see that stop loss line....but on the link you provided, it doesn't appear for some reason. Could be other studies are blocking it?
 

Chence27

Active member
Yes, I should be able to activate the stop loss line but for some reason, it doesn't appear. If I open a brand new chart, I can see that stop loss line....but on the link you provided, it doesn't appear for some reason. Could be other studies are blocking it?
It's possible that I modified the code. I remember tinkering with some indicator codes a while back. Just import the original indicator I suppose. Other studies wouldn't block it.
 

Chence27

Active member
@Chence27 Can you share the link again? All the links above say Page Not Found...Thanks
Every time I've shared a chart in this thread, sooner or later the link stops working. I have no idea why but at this point I'm throwing in the towel. All the studies are listed, just put them together in a chart. Easy peasy.
 
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