Example RSI Divergence Trade Setup: $TSLA (Tesla Motors Inc.)

February 16, 2017

All indicators are only a method to repackage complex information in a simple and repeatable way.  I have said before that divergence indicators (like my own Multidivergence Indicator) are not good trade signals by themselves. What they are good for is context.  You will still need some entry criteria of your own to decide when to enter a trade.  You should also have a stop and a target identified before entry, which are basically a plan for if you are wrong and a plan for if you are right.

Here’s a trade I did not take, but I saw developing in real time. It becomes a useful case study for a divergence setup in $TSLA that had a positive outcome.

There was a divergence between the high prices and the RSI indicator for a week or two beforehand. By itself, that doesn’t tell you to sell. Price kept pushing higher even in the face of the divergence. The divergence eventually resolved and went away, and the uptrend continued. But it was telling you that in this context, the trend might be getting tired. You could be looking for a reason to sell. If you try to front-run it, you can get destroyed. Bull markets are built on the smoldering bodies of early bears.

Almost everyone saw that big ugly candle in $TSLA the other day, selling off after threatening to move into all time highs. Using the context of the earlier RSI bearish divergence, this candle was another good piece of information. You have several signs pointing to reversal now. One trade plan could have been to sell a break of the low of that candle, with a stop above the candle high just in case you are wrong. Whatever you do, STICK TO THE ORIGINAL STOP LOSS. Stops only move toward profit, never toward more losses. If you were wrong and price had spiked to new highs in the trend you’d eat the 8 points or so and move to the next trade. In case you were right, maybe you set a target to cover around $255 support, or maybe you sell half and let the rest ride until you see a bullish reversal candle. There’s a lot of great options when you are right! That’s the easy part.  

Here’s what happened:

If you had taken the trade, you had a big follow-through day today on the downside, and you’d be sitting on about 10 points of profit.  One more good day and your target could be hit. 

Remember, indicators only give you information. You as the trader have to decide what to do with it, taking into account your psychology, risk tolerance, account size, and all the other fundamentals. 

Multi-Divergence Scan for Think or Swim: MACD, RSI, CCI Divergence in Your Stock Scans

September 13, 2016

In my Multi-Divergence indicator, there is logic used that breaks the study filter when you try to use it in a scan. So I made a new indicator specifically for scanning by limiting it to only use MACD, RSI or CCI. Now it can be used in a watchlist scan, and it’s called “Pro_Divergence_Scan”. It is still a donor-only script, so use your blog donor info to access it in the Released Thinkscript Studies section of the Google site. If you’re not a donor, you can chip in by clicking the Donate button:

Instructions:  Import Pro_Divergence_Scan like any other study, then follow these directions to set up a scan with it.

Go to the scan tab in Think Desktop, and choose “Stock Hacker”.  Then you click “Add Study Filter” (First in screenshot below) then click the pencil to edit the default filter that is added (Second in screenshot):

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Delete the default ADXCrossover() if there is one (Third in screenshot) and then click “Thinkscript Editor” (Fourth):

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Choose your Aggregation period at the top (D for Daily in this example).  In the editor, type in “Pro_Divergence_Scan()” and then choose “Inspector” from the side panel.  You’ll see the Pro_Divergence_Scan study inputs and the four plots that you can scan for:

    1. BullDivs for Bullish Divergence on short timeframe
    2. BearDivs for Bearish Divergence on short timeframe
    3. BullDivl for Bullish Divergence on long timeframe
    4. BearDivl for Bearish Divergence on long timeframe

 

screen-shot-2016-09-11-at-7-25-30-pm

(As an aside, you can also type the name of any other study you have in your library at this thinkscript editor to get access to it for any filter.)

For the scan to trigger, you want to check for when your chosen plot value is equal to 1, because that’s what I coded the indicator to do.  To do this, add the string “==1” after the plot name, as shown here:

screen-shot-2016-09-11-at-7-25-54-pm

After this, click “Ok” and run your scan.  You may get a pop-up that warns that future changes to the study will not be reflected in this filter.  That just means that if you change the code in the Pro_Divergence_Scan, it won’t be reflected here.  The filter takes a snapshot of the code when you make the filter.  If you update the indicator, just delete the old filter and set it up again as above.

Email Problems

June 22, 2016

If you’ve been trying to reach me, check your spam folders for my replies. My messages seem to not be getting through to people. 

Multi-Divergence Indicator for Think or Swim: MACD, RSI, CCI, On Balance Volume and many more

January 11, 2015

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I figured out a way to combine all my divergence indicators into one single study. The new Multi-divergence script uses slopes of linear regression lines just like in the new MACD divergence indicator. This script supersedes all the other divergence scripts. The difference is now it can perform a regression on any one study of your choice from a list of ToS indicators. The indicators currently supported for divergence analysis are:

MACD, RSI, CCI, Momentum, Moneyflow, On Balance Volume, Rate of Change, Stochastic Momentum Index, Ultimate Oscillator, Volume Flow Indicator, Volume Oscillator, Volume Rate of Change, Volume-Weighted MACD, Williams Percent-R, and Woodie’s CCI

(Note that it doesn’t scan all of these for divergence at once. Just the one indicator you select. If you want to have RSI and MACD at the same time for example, you put the script on your chart twice and select the appropriate indicator for each one separately.)

If there is another built-in ToS indicator you want to have available for divergence analysis, let me know and I can add it in future updates. You can use the Multi-divergence indicator on real time charts and in scans of watch lists, and I put in alert logic so it can ping you when a divergence occurs.

This indicator is for blog donors only.  You can find it on my google site under Released Thinkscript Studies down in the Donors Only section. If you already donated in the past you can use your password to access it. If you want to become a donor (or throw me some more coin) you can do so by clicking the Donate button:

As always, if you are a DIY’er, feel free to ask questions in the comments and I’ll help answer.

Complex Analysis Tool (CAT): Analyzing and Recording Think or Swim RTD Data in Excel

December 19, 2014

I just updated the stock Excel CAT tool to use RTD instead of the now defunct DDE. This only works on Excel for Windows unfortunately. You can go download it now from my Google Site under Released Tools in the Donors Only folder. If you already donated in the past you can use your password to access it. If you want to become a donor (or throw me some more coin) you can do so by clicking the Donate button:

If you want to learn more about the CAT, the original blog entry is found here.