Divergence is one of those things in trading that is like an Art. The difference between a "good" divergence play and a "bad" one requires an eye for two things: 1) coincidence with a good fib placement, 2) a reasonable risk to reward ratio.
Our YM trade setup this morning combined divergence of our oscillator with price, a touch of the 61.8% retracement area and a confirmed bullish doji candle that wasn't too big.
R = 22 ticks
Initial target 11867 (61% retracement)
R to R ratio: 2.1
Actual exit was at 11864 for +48 points or +2.04 R
My exit was the low of the bar entering the 61.8% retracement level. This is a good way to trail your stops on moves that are unlikely to be lasting (such as this one). Since this wasn't a major S/R area to bounce from and we had already failed to make a move up this morning this wasn't likely to be a home run. However, this was a solid single and a good use of looking for multiple pieces of market information to confirm a potential entry.
Monday, March 17, 2008
Posted by Lord Tedders at 10:17 AM