Trading Lessons: Accurately Analyzing MACD Divergences

Every Friday I dedicate my day to working in a Trading Lab to either developing new trading ideas or enhancing an existing trading strategy. This weeks trading lesson is based upon two hypothetical trades that I made during Friday's session and focuses on accurately analyzing MACD divergences and how the indicator can be used to confirm your elliott wave analysis.

Numerous professional traders dispel the use of divergence analysis but as you will see, when used to compliment your elliott wave analysis, divergences can help confirm your count and assist in determining market tops and bottoms.

I hope the examples contained within the following video will encourage you to do your own analysis and become confident to act on divergence analysis.


Best of Trading

Is It Finally Time for Natural Gas to Shine?

I've Pulled The Trigger and

Bought Natural Gas Today...

I've had Natural Gas on my watch list for quite some time. With the seasonal trend up beginning on September 2nd (not shown) and the fact that the Commercials are adding to their long positions, I've been waiting for the completion of w.e of the triangle within w.Y. I am viewing the slight break of the lower boundary of the triangle as a throw over. Any subsequent break of w.c (3.39) would negate the triangle interpretation and my bullish view.

At the daily chart level, from the 3.85 low, I was looking for a five wave advance to confirm the weekly interpretation. If correct, price should thrust from the w.e low. Two sets of technicals are supportive of my analysis. The MACD shows divergence as prices made new lows and the RSI broke through 50-60 levels on the rally to 4.02 signaling that the rise was most likely not a counter trend move.

Subsequent price action is in a three wave zig-zag and the market has found support at the .618 retracement  of w.i. I level.

Trading the futures in Natural Gas is too my for my blood so I prefer using the ETF, ticker symbol UNG .

As to properly disclose to my readers, THIS IS A REAL TRADE, NOT SIMULATED! I will be adding ticker symbol UNG to my trade disclosure. You can locate that disclosure about 3/4 of the way down on the left hand margin of the site.

I've indicated my entry which front ran larger orders at 9.93 and the figure where w.(c) = w.(a) of 9.84 which is a reasonable entry level. Risk on the trade is minimal (.24) per 100 shrs. I'll be watching how price reacts off 9.84, unless the structure of w.ii is already completed. My target is a challenge of the 10.14 with much higher potential.

Should price decline from 10.14 and in a five wave move, the analysis is flawed and so is the trade. As such, from a risk management view, I'd be looking to cover on the next three wave rally up.

If you are interested in following the trade, I'll be making regular comments to this post.

Let's see if I can make some coin.

Best of Trading

As always, following this trade is strictly for educational purposes! Please familiarize yourself with the Risk Disclaimer and Disclosure Statements make within this blog site.

Silver:Revisited

Is There Still Silver In These Hills?

The following chart is part of my initial commentary on July 28, 2011. As you can see my analysis for the termination point of the corrective rally was incorrect as price exceeded my invalidation point of 41.97.

Here is the updated chart through today's close. From the w.iv circle low of 39.13, a small five wave advance where w.v = .382 w{i-iii} at 41.92 took place and is in agreement with the 1.618 RF extension of w.B red. Also note that the bearish reversal that occurred today is also what one wants to see if a top is in... i.e. a swift retracement of w.v in less time than it took to complete.

Additional evidence of a w.(2) crest can be found by looking at the MACD technical study that shows a divergence as noted by the green lines.  This market should remain under selling pressure in the days to come.

Best of Trading