Momentum Divergence Trading System

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hjelmstade
Posts: 34
Joined: Wed May 18, 2016 6:51 pm
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Momentum Divergence Trading System

Post by hjelmstade » Sun Dec 25, 2016 12:50 am

Hi all,

This is another trading system I built that uses my custom implementation of momentum divergence detection. I'm not using this to trade live but instead am using this as a sub-system in the Livermore MVS I shared earlier. I'm sharing it in this format so you can see the benefit of including this as a sub-system in your own ATS. If you run this on an @ES#C chart, you will see it has a very high average trade value which means that although it does not give a lot of signals, when it does, it is usually pretty accurate at identifying large movements. Note: as we have been in a bullish market, it does a much better job at identifying bullish momentum divergence.

Here is the backtesting code: http://www.wave59.com/library/scriptdetail.asp?id=179


There are two things that are unique about this momentum divergence detection algorithm.

The first is it determines when to check for momentum divergence by identifying the "kicker" candlestick pattern using a regular expression. Once it identifies the kicker pattern, it stores the information, including momentum value for that bar and then begins to search through previously identified kicker patterns and compares their momentum values.

The second is that as it is searching through previously identified kicker patterns and comparing momentum values, it will continue doing so until

a. The low of the bullish kicker pattern is lower than the most recently identified bullish kicker pattern
b. The high of the bearish kicker pattern is higher than the most recently identified bearish kicker pattern

This means the momentum divergence detection is first looking for smaller momentum divergence occurrences and if it does not find any that fit the criteria, will continue searching for larger momentum divergence occurrences until it hits the max number of bars to look back for divergence which you provide as input.

This algorithm will work for other time frames, futures, etc. but you will have to adjust the input parameters until the detection is what you are looking for. The comments in the code describe all of the inputs.

Also, if you break this out into a function to be used in one of your systems, you will need to include the regex on the indicator level and then pass the information to the function as I cannot get regex to work inside of a function without an error.

Attached is a screenshot explaining what it is doing on the chart as well as backtesting results.
Attachments
ES_Daily_MomDiv_12-24-16_Chart_Example.png
ES_Daily_MomDiv_12-24-16_Chart_Example.png (109.94 KiB) Viewed 15068 times
ES_Daily_MomDiv_12-24-16_Summary.PNG
ES_Daily_MomDiv_12-24-16_Summary.PNG (34.2 KiB) Viewed 15068 times

rlygangesh
Posts: 39
Joined: Sun Oct 02, 2016 3:40 pm
Location: Mumbai, India
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Re: Momentum Divergence Trading System

Post by rlygangesh » Tue Jan 10, 2017 10:26 am

Hi Hjelmstade sir
can i use this system with smaller time frame like 4/5 min, 15 min chart?
as far as my thinking lots of us haven't MTS book of Earik sir so they can't use your other system so i also want to know that
Is this system free with GA so that a normal user can use with their system/

can we show divergence line when appears on price chart as well USM chart it will helpful to it with other system/indicator ?
here i am talking trading with discretionary approach(not mechanical)
rlygangesh@gmail.com

hjelmstade
Posts: 34
Joined: Wed May 18, 2016 6:51 pm
Contact:

Re: Momentum Divergence Trading System

Post by hjelmstade » Wed Jan 11, 2017 9:30 am

Hi rlygangesh,

You can use the momentum detection part on smaller time frames but I have not had much success turning it into a profitable automated trading system. This is mostly due to not having a sufficient exit strategy. On the my implementation of the Buttonwood system I just shared on the Buttonwood thread, I used momentum divergence as an exit system as I found that worked better.

When using my momentum divergence detection algorithm on smaller time frames, you will need to re-optimize the inputs, especially the divergence distance to detect on the USM.

Regarding genetic algorithms, on both my Livermore and implementation of the Buttonwood system, all the code should run without needing access to the GA tool. The scripts are the outputs from that tool, you just don't have access to the tool itself that creates the output without purchasing the MTS book.

To answer your question though, this system does not use anything generated using genetic algorithms.

Regarding showing divergence lines on the price chart and USM chart, I might be able to do that. I have a day job so will try to implement that when I have time, might be a little bit but I'll get you something eventually as that would be useful to others as well.

rlygangesh
Posts: 39
Joined: Sun Oct 02, 2016 3:40 pm
Location: Mumbai, India
Contact:

Re: Momentum Divergence Trading System

Post by rlygangesh » Thu Jan 12, 2017 5:58 am

Hi hjelmstade sir
Many Thanks for your reply

i m grateful to you that you are going to spend your valuable time regarding showing divergence lines on the price chart and USM chart.
as far as Exit strategy concerns there are some picese missing , i had seen many webinars of Earik sir with great entry technique like (9-5, ExBars1, Ultrasmooth, Fractal, Action Zones, Harmonic Index on a 2min ES chart, 18 sept 2009), (Fratcal Trend, Displaced AMA, Regression Channels, 2 oct 2009)

but i have not seen any webinar(may i missed) with a great exit system, as far as my thinking exit is more important than entry , if exit is good you will made money even entry is not good, all of mechanical system describe in group have almost 62-68% of accuracy but if we follow great exit than it will become 80-85%.

till that time lots of trader including me only focus on money management & good RR ratio like 1:2,1:3 as exit system.
so if possible Earik sir or anyone please share any idea about this, one webinar only focus on exit will be a great milestone for group
rlygangesh@gmail.com

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