Full Review of the Geeks Simple Stochastic Divergence Binary Options Strategy
Although simple to explain this strategy is a little more advanced than the Simple Stochastic Strategy I published earlier. This one uses divergences in the indicator to trade both trend following and non-trend following signals. I know, trading against the trend is not usually the thing to do but sometimes the trend changes. Divergence in stochastic is a remarkably handy indicator of when that is about to happen. The trick is in how you take the signals. Sometimes a divergence is just a divergence and doesn’t lead anywhere, and sometimes they lead to major corrections. You have to have a firm grasp on underlying fundamentals, how near term news is affecting the outlook and what to do when divergence shows up on your charts.
Click here to read the Geeks Simple Stochastic Strategy.
How Does The Simple Stochastic Divergence Strategy Work
Basically, it works on divergence. Divergence is when the asset you are studying reaches an equal or new high, or an equal or new low, and that high or low is not matched by a corresponding high or low on the stochastic. This is a sign of declining strength in trending and range bound markets, can be used to confirm support and resistance and often leads to reversal. The way that I use divergence is as an extension of the Simple Trend Following Strategy. When trading the trend I not only look for trend following signals but also for signs of reversal and continuation such as divergence and convergence in my indicators. Divergences can occur in two places while a market is trending; at a peak and at a trough. The peaks, such as a new high, can lead to tests of support and opportunities to trade counter the trend by catching a near term reversal. Divergences that occur in troughs, in the case of an uptrend, are actually confirmations of support levels and in essence a trend following signal. The chart below shows three new highs that occur during an uptrend, each accompanied by a stochastic divergence and followed by decline. Take not of how sharper divergence leads to a larger decline in the index.
Why This Strategy Doesn’t Suck
This strategy doesn’t suck because it works, and because even if you don’t use it to make trades, you can use it to stay out of trades that may otherwise be a loser. You know, a warning that the trend is weak and that maybe you should wait to see if there is going to be a pull back before making that trade. I’ve often heard that a nod is as good as a wink, especially if it keeps you from losing money. In the end though, I think that anyone who begins to use divergence to stay out of trades will eventually come to realize the profits they are losing on those down swings by not trading. This strategy doesn’t suck because it helps double the potential entry points you get with the Simple Trend Following Strategy.
Why This Strategy Might Suck
This strategy might suck because it is more advanced, not easily used by new traders and relies on a certain level of skill. It also might suck because it is trading counter to the longer term trend and tried to catch the near and short term reversals. These reversals are hard to predict in terms of absolute depth and duration, which makes it harder to pick expiry. It’s really hard to know when exactly one will start, and how far it will go, it all depends on current conditions.
My Last Thoughts On The Simple Stochastic Divergence Strategy
Y’all don’t have to use it, but I do. It is a natural extension of the Simple Trend Following Strategy and one that I use everyday, on every chart, as they present themselves. The divergence is like an X-ray into the market telling you where it is strong, and where it isn’t. You can use this knowledge for many things including keeping you out of a trend following trade, and setting you up to catch a reversal and the possible beginning of a new trend. The caveat is on expiry. Sometimes a divergence builds up for a while, and then results in a lightning fast move, so knowing how to choose the right binary options expiry will be crucial to success.