The magic of divergence – or not.

Divergence is a common measure of market momentum, but how useful is it? Divergences on their own are dangerous signals but when used in conjunction with price they become a powerful tool to add to your trading arsenal. Understanding momentum is key. The example below shows a strong upward trend by TPG Telecom interspersed with corrections. The divergence during 2015 by the momentum indicator was a warning but was unconfirmed by price which has since maintained it upward trend and in fact recently broken higher. Don’t let inaccurate analysis and common market ‘adages” mislead you. There are right ways and wrong ways to use momentum.  In essence there are two simple rules to live by. Price is king and the trend is your friend.

It my Radar Newsletter next week I discuss this indicator in more detail and a very simple way to use it effectively and profitably.




Key to trading success – know your trade triggers

I know my trade ‘triggers”. Every trader should strive to know his or her trade ‘triggers’ very well. We should strive to only take a trade when the market set up is right. We should strive to avoid trades when the market set up is not right.


If you, as a trader, do not know your trade set up with great intimacy, then how in the world will you know if you are exercising patience and discipline?

Once you know exactly what your trade ‘triggers are, then the real challenges begin.

The real challenges are patience and discipline.

Patience to wait for just the right set up

Discipline to sit on the sidelines and not getting pulled into a trade that does not fully satisfy my requirements

Discipline to pull the trigger when the right trade comes along

Discipline to remain detached from open positions and properly manage each trade according to trade management guidelines developed over decades of market speculation

Patience to allow a position with a substantial profit potential the room and time to bear full fruit

The above challenges are very, very real. The markets can force a trader to let his or her guard down. The markets are all about forcing traders to become reckless when over confident or paralysed when fearful.

Some of the traps:

“Our ego’s – need to be right”
“Trade now and trade often”

“Fear of missing out”

“The only way to make money is to trade”

“Not leaving money on the table for someone else”

In fact, there are times when NOT trading can be the action with the best outcome. Trading just to trade often leads to drawdowns. Then comes the urge to find trades in order to recover the drawdown. Often this leads to a worse drawdown. Before a trader knows it he or she can be in a 20% to 30% or greater drawdown resulting from trades that never really qualified as trades in the first place. This is when the capital drawdown becomes a significant emotional drawdown. Vicious cycles can easily come upon us as traders.

The answer: Know your trade plan, stick to it and manage your risk – no matter what.

The probability game – where is this market going?


Does it matter? The reality is you should make money and (must) lose little.

The higher probability option says the market will return to the lows and support. This is the lower risk, low reward option.

The lower probability option says the market will break higher through the previous resistance. This is the higher risk, high reward option.

The price is in a high probability money-making position.

Price analysis is very useful, but more importantly there is money and risk management