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Following on from the most recent news letter I am continuing with a quick chat about divergences. As I said last time, one of the technical methods I use to look for these extreme tops and bottoms is examining divergence between price and volume. In my weekly updates I do, (link below) I often speak about divergences and give examples.
https://www.easysharetradingsystems.com.au/how-to-trade/52-week-highs
So this time let's look at a stock for an example. Recently I have been trading MGH and below is the weekly chart using the parameters of the OBV and the MFI 13 period. Sometimes I use a simple line chart for the price, to take out the noise. I am not looking at price alone, but divergences between price and volume. I don't want to be distracted by examining price bars or candles.
It's fairly clear to see that even though the price is rising steadily and so is the OBV, the 13 period MFI is trending down. Does this mean the stock price will fall?
No it doesn't, but its a warning that perhaps the price is a little extended and is due for a pause or yes perhaps a fall, depending what happens with this particular stock or the market in general. A rising tide does tend to float all boats. So now we have looked at the weekly chart, let's drill down into a daily chart and try to get some more information.
I have changed the 13 period weekly (one calendar quarter) to a 10 period daily (2 weeks of trading). Although there is no real divergence here that stands out, the MFI is in the overbought territory and if you look at the chart you can see that every other time that happened the price dipped. I have drawn two green support lines on the price chart to show where the price may fall to - depending on what happens to this stock or the market in general.
I often get asked about shorter term swing trading as I normally talk about weekly systems. I believe if you are learning to trade, or even you are not learning to trade and you want to make it all a bit easier, then your focus is best put towards stocks trending well. MGH is an "open trade" in the Mindful System - the system I punch out the alerts for each week.
Last news letter I mentioned Adrian Reid and his Trader Acceleration week. Attending seminars is a great way to expand your knowledge and thinking. If you come away with just one great idea it can make a big impact.
If you want to find out more about Adrians offer - here is the link
Https://go.enlightenedstocktrading.com/trader-acceleration-week-pc
Also, seeing as I am plugging colleagues and providers, a big shout out to Richard Dale and the team at Norgate. I use Norgate data and have done for nearly 20 years, so they must be doing something right! Click on the link for more info.
https://norgatedata.com/
I will finish the news letter with a few lines from my book about ego and identity - often the traders greatest challenge, particularly if we are going through a rough patch.
• Zen asks you to reconsider what identity means.
• Attachment to the ego/identity/self makes it harder to
accept losses.
• Intelligence won’t help you detach; in fact it may hinder
The Zen Trader p. 147
https://www.easysharetradingsystems.com.au/products-and-services/e-books
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