What Is Best For Determining Divergence?

How best to spot the divergences so as to improve your trading strategy?

Because I quite like using divergence as a signal for trading I am often looking at various oscillators to see which one is best.

That is a tough question to answer as oscillators are all constructed with a different method.

And each oscillator will react to a situation a little differently, sometimes showing the divergence and sometimes not detecting it.

What indicators will show divergences?

Here are a few that I have used:

• Stochastic Oscillator
• Moving Average Convergence Divergence
• Commodity Channel Indicator
• Twiggs Money Supply
• Rate of Change Indicator
• Momentum

Each of these has its own quirks and we can only depend on them after having used them for a long time so as to learn about their individual habits

What do I use?

I do scans for divergence daily and throughout the day and I scan different time frames as there are many opportunities especially in times of volatility.

My favorite chart is one with each of Macd, CCI and TMF, the reason for the three is that each detects divergences differently.

Here is the chart I am using at this time and I may well change it as time passes and I find it to be less productive. You will see on it that I have the three indicators.

Check out each of those indicators and you will see that all three are different and the warning of approaching trend change is delayed by a couple of them.

Can We Use Twiggs Money Flow for a Divergence Strategy?

Will Twiggs Money Flow Show Divergences?

This indicator is created by the folks at Incredible Charts and is derived from the Chaikin Money Flow but fixes some of the CMF's weaknesses. The main difference is the exponential smoothing of the Accumulation Distribution values from which the Money Flow is derived. More info can be found at Incredible Charts.

Price and volume are very important to determine the  health of the market. The TMF uses averages to account for gaps and yesterday's market as well as today's.


One great feature about this indicator is that it illustrates divergences well and it can be adapted to long or short periods.
Its signals are simple and easy to read making it perfect for scanning for divergences.

Difference Between Macd and Twiggs Money Flow

Here is a chart for Fedex with the Macd and the Twiggs Money Flow indicators. You will see that there is a divergence showing on the TMF but not much on the Macd. The reason being that the TMF is accounting for volume as well as price, thus being, perhaps, a much more definitive indicator for this purpose.

I have collected some articles to outline some applications of the Twiggs Money Flow. You wiull see that the first two were written by Mr Colin Twiggs, who better than he to explain how the indicator can be used with real time examples.


Asia: Governor Kuroda bets on QE | Gold, Stocks & Forex
Tue, 04 Nov 2014 00:05:25 -0800
The Nikkei 225 surged through 16300, signaling a fresh advance. The long-term target is 18000*. Reversal below 16000 is unlikely, but would warn of another correction. Recovery of 13-week Twiggs Money Flow above zero ...
Read more ...



October correction nearing end | Gold, Stocks & Forex
 Sat, 25 Oct 2014 01:45:53 -0700
Penetration of the descending trendline suggests that the October correction is over. Recovery of 21-Day Twiggs Money Flow above zero indicates medium-term buying pressure. Expect a test of resistance at 2000 followed by ...
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And this last article is an explanation about the indicator written by a blogger



Welcome to My Domain: Twiggs Money Flow
 Sun, 20 Feb 2011 18:14:00 -0800
Twiggs Money Flow is a derivation of Chaikin Money Flow indicator, which is in turn derived from the Accumulation Distribution line. However, Twiggs Money Flow makes two basic improvements to the Chaikin Money Flow ...
Read more ...


This is a direct link to Incredible Charts where there is a complete explanation of the Twiggs Money Flow Indicator.

Exelon Is Showing Bearish Divergence

Update: I have posted an update to this post as at November 17, 2014.


Exelon has had a lengthy rise and has done well for its investors. There may be a stall coming in the advance as the Twiggs Money Flow is showing some bearish divergence.


I am adding this chart to the mix as divergences are often made obvious by Macd or CCI and the Twiggs indicator can also be illustrative.



Here is the chart showing the divergence. (click on the chart to enlarge)

Exelon is a huge corporation with some diverse interests, I have curated a couple articles and as you will see in the articles not all writers are in favor of current policies.

First a look at part of the Bloomberg Snapshot for Exelon:

You can see the rest of the Bloomberg Snapshot here.


This 'market solution' only benefits Exelon - Crain's Chicago Business
 Sat, 01 Nov 2014 20:11:04 GMT
This 'market solution' only benefits ExelonCrain's Chicago BusinessYou know you've got a good thing going when profitability is only a bailout away. That's the kind of mojo that's working at Exelon Corp., which is signaling it will seek legislation n ...
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$580 MILLION EXELON RATE HIKE?? That's the price tag for their nuke bailout ... - The Capitol Fax Blog (blog)
Sat, 25 Oct 2014 15:11:15 GMT
$580 MILLION EXELON RATE HIKE?? That's the price tag for their nuke bailout ...The Capitol Fax Blog (blog)Yet now Exelon is demanding an annual 580 million dollar bailout from ratepayers—industrial, commercial and residential—because they don't want ...
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Exelon Earns 'Buy' Rating from Deutsche Bank (EXC) - Ticker Report
 Mon, 03 Nov 2014 18:07:43 GMT
Exelon Earns 'Buy' Rating from Deutsche Bank (EXC)Ticker ReportExelon Co. logo Deutsche Bank reiterated their buy rating on shares of Exelon (NYSE:EXC) in a research report released on Thursday morning. Deutsche Bank currently has a $36.00 price obje ...
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Exelon Reaches Deal with ArcLight to Sell Pennsylvania Power Plants - TheStreet.com
 Thu, 30 Oct 2014 16:08:59 GMT
Exelon Reaches Deal with ArcLight to Sell Pennsylvania Power PlantsTheStreet.comExelon, the Chicago-based electric, is progressing smoothly with its noncore power plant divestitures. Just this week, Exelon and its sellside adviser Bank of America Mer ...
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