convergence and divergence

MACD is an acronym for moving average convergence and divergence.

This technical indicator is applied to trading charts and used to analyze momentum swings in financial markets. The MACD was developed in the late 1970's by Gerald Appel.

Who is Gerald Appel you may ask ?

Aside from being the inventor of the Moving Average Convergence Divergence momentum technical trend trading indicator Gerald Appel is involved in financial assets management and offers his services via the Internet at a website called Signalert Corporation. Appel is the president of this business which he founded in the early seventies and which has grown into a multi million dollar investment management service. Appel is also President and CEO of Appel Assets Management and writes about investment strategies that focus on risk management. But Gerald Appel is more than a financial guru. He also trained in social sciences and claims that his psychotherapy training allows him to better understand his clients need.

In the same year that he founded Signalert Corporation (1973), Gerald Appel (born in 1947)began publishing a newsletter called Systems and Forecasts.

The MACD or convergence and divergence momentum or trend indicator is a simple technical indicator which is part of most online trading platforms available to traders on the internet today.

The MACD uses three values to evaluate deviation from the market mean of moving average.

The first setting is a long moving average, the second is a short moving average, and the third is a trade signal indicator.

The graph itself only shows two lines and usually an histogram.

One line is drawn by subtracting the short moving average from the long moving average. The other line is the signal moving average.

The histogram is calculated by subtracting the MACD signal line from the MACD itself.

A trader looks for crosses of the signal line and the MACD line. This occurs after divergence away from the mean or a convergence on the moving averages of the MACD.

The default settings used on most trading platforms is usually 26 for the long moving average, 12 for the short moving average, and 9 for the signal line.

However the trading platform end user can change the defaults and come up with combination that work well for the trading instrument which they are analyzing.

Like other momentum or trend technical indicators the MACD convergence and divergence indicator is not without it's limits. This indicator fails miserably in channels where breakouts fail to be followed through with a strong trend.

Look up some posts on this blog to see how the MACD is used to spot trading opportunities.

conclusion of gbpjpy 1 minute trade

On our last post the minute chart was showing early signs of yen strength.

Within a few hours we got out 134 price which put us in a trade short the sterling on the one minute chart which gave us more pips than we lost on the previous failure of the 30 second chart setup.

Gaining more on winning trades and losing less on losing trades is half the story of success in trading and in gambling.

The exit for the conclusion of the gpbjpy 1 minute trade came when the momentum was lost which was indicated when the price touched the 200 SMA.

The last four post show a method of intraday trading which is very time consuming. However the same divergence and convergence applies on longer timeframes.

The difference when trading longer timeframes is only the number of pips that you are placing odds against. The benefit of trading longer timeframes is that it frees up time to do other things with your valuable time. Things like working or concentrating on family and friends.

It's a matter of choice and of knowing what type of trader you are or want to be.


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Trading includes risk. We provide this journal as an educational tool and not as trade information.

Sterling Yen 1 minute set up

Our 30 second test failed has seen here.

On the last post we said we'd wait to see the 1 minute MACD consolidate and at approximately noon on the same day it has.

The gpbjpy chart above shows the early stage of this set up. The 30 second chart failure saw the sterling buyers move the quote of the gbpjpy to 134.50 and on the 5 second chart shown above we watched a trendy retrace to 133. 60.

This retrace gave us a touch of the 200 SMA on the minute chart and a consolidation on our MACD.

What do we do with it ?

It noon and the gbpjpy is likely to hover at this level for many hours or even until the overnight markets start trading heavy.

We watch the five second chart for a chance to enter a trade short the pound around 134 or so and set another stoploss order about the last high.

gbpjpy 30 second failed trade

It only took less than an hour to see our 30 second chart set up fail. If a stop loss was set above the last high then this gpbjpy trade failed and a loss of about 40 pips was taken.

The 1 minute gbpjpy chart tells a story where the demand for gbp exceeded the supply and some traders were ready to push the sterling pound quote higher.

Where does it go next ?

We wait for consolidation on the one minute chart.

See the first post....gbpjpy 30 second test

See how the one minute chart setup worked out.

gbpjpy 30 second test

Following a gbpjpy 30 second test on June 1, 2010.

It's Tuesday morning and the US Memorial Long weekend has passed.

Today we are looking at the sterling pound of the UK and the Japanese Yen. Our MACD on the 30 second forex chart is showing some consolidation on the 30 second chart. Meanwhile the gbpjpy price is battling it out on the 200 SMA.

We could look to the 5 second chart for an entry short the UK pound here and put a stop loss or other risk protection strategy somewhere above the high of 1.33 and hold the position for a profit if the 30 second MACD signal works out.

How would we tell ?

Simple. Just look for a divergence pattern and exit at the end of the pattern. Easier said than done however.

See the results....gpbjpy 30 second test trade fails

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This is a journal and only an educational exercise. We do not recommend trades and take no responsibility for other people failure to respect the risk warnings associated with trading foreign exchange currencies.

Two trading words

Here are two trading words that should be familiar to anyone who trades.

Margin Call !!!!

What is a margin call ?

Investopedia defines these two trading words in the following way( not a direct quote).

• A broker's demand on an investor to deposit more money or securities so that the margin account is brought up to the minimum maintenance margin. Margin calls occur when your trading account value depresses to a value calculated by the broker's particular formula.
• You would receive a margin call from a broker if one or more of your securities decreased in value past a certain point at which point you are asked to deposit more funds in the account or to liquidate some positions.
• If neither action is taken by the investor and the account loses more value then the broker automatically liquidates all trades in the account as a measure of insurance against further losses, or losses beyond the principle of the investors account value.

Margin call are two trading words that in theory protect both the investor and the broker. Many traders will tell you that margin calls are at the same time an insurance and a weapon of financial trading war where the broker looks for over leveraged trading accounts and purposefully moves markets just enough to force margin calls. The truth to that is an ongoing debate.

Do brokers really hunt down over leveraged accounts in order to weed out the market pigs (pigs get slaughtered ) ?

IMO the question that wasn't asked in the Goldman Sach inquiry was whether or not the GS traders were hunting overleveraged accounts. The inquiry looked into the ethics ( lmfao) of big banking where the good ole Senator kept asking the same futile question of the GS CEO. The question being asked was whether or not GS was trading against their clients and the CEO's answer was always that in that segment of GS there was no guarantee of fudiciary responsibility.

Margin trading is highly risky. Margin money is borrowed money and used as leverage to increase profits. It also increases losses when a trade war is being fought out.

Knowing that is one measure of keeping one's trading within tight parameters.

However everyone who has traded financial markets before knows that psychology is likely a bigger rule that money management.

Is there a way of combining psychology (discipline, poker mentality...etc.), money management, and the dreaded margin call to challenge that oligarch banker or that person or group of people who might or might not be hunting you down.

These two trading words can become just as much an asset as the old saying 'the trend is your friend'.

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I keep wanting to include something about real news and propoganda used in the form of news to move or control market sentiment (thinking Bloomberg's hurry, hurry hard attitude)....however it just isn't fitting. Too bad !!!!

USDCAD May2010 Update

Hang Eleven focused on the USDCAD last week.

Part one

Part two


We update that forex analysis of the Canadian dollar trading against the American dollar.


We'd left off with the USDCAD quoting at 1.0593 and watched it run to 1.0850 and then retrace all the way back to 1.0435. By the end of the week, the last week in May 2010 the price rested at 1.0515 for the weekend.


We added a 200 SMA line to this chart. Notice that our MACD numbers run in close correlation to that simple moving average. A 200 SMA is considered a strong support and resistance area.


Usually when the price crosses 200 it signals a trend reversal. But usually is only a word and not a law. More often than not a price war breaks out on the line before the trend reverses or fails to reverse.



In this case where the USDCAD is the focus, the longer charts continue to signal a trend favouring the Canadian dollar.

The daily chart on the left shows a push or a test of that longer trend. The 4 hr chart on the left definately appears to be indicating a short term move towards 1.025 or so to test the 200 SMA on that chart. If it does then it will obviously print a signal to go short the USD on our Hang Eleven MACD.

Is it all tradeable?

We don't recommend trades.....we only write about this to keep busy.

timeframes and trends

In another post we mentioned how to choose a timeframe.

This post goes into how timeframes and trends build up on one another.

Everyone has heard of the snowball effect and how a small ball turn into a giant one as it rolls down hill.

Trading charts are basically just technical instruments to monitor and assess the progress of the building up of the snowball. OK, that may be oversimplifying it a bit. A snowball doesn't go backwards usually. Financial market prices do.


What is really happening on a trading chart is that trader or investor sentiment is being recorded. Every auctioned quote is picked up and registered for historical record keeping purposes. Charts are the technical traders life line. The also serve the fundamentalist who looks for the true market value of a financial instrument to be met eventually. However in todays volatile markets which is trader, not investor, driven, one wonders if true value is ever really a point worth shooting for. By the time the price gets there the true worth as changed.


Timeframes and trends are easy to understand.



You can follow this experience and see for yourself what we mean.



Start by looking at a five second trading chart and notice that very short trends develop. These trends are sometimes not even big enough to cover the vig or cost of covering a buy or sell order. Yet it is a trend or divergence from the mean.



If it is a true trend with momentum in a direction then the banker or group of investors or traders who is moving the market will eventually run out of supply on the 5 second chart and continue moving the market in the direction of the trend which will carry show on a 10 second chart until no supply is left and then the 30 second chart until no supply is left and then 1 minute, 5, 15, 30, hourly, daily.....



Timeframes and trends are a matter of supply and demand and subject to liquidity.

choose a timeframe

Let's call this post how to choose a timeframe for trading a trend....

What's a trading trend ?

There could be many answer to that but by most standards a trading trend is a divergence away from the average trading quote.

To choose a timeframe to trade on is more about knowing what type of trader you are. The three main types of traders are daytraders, swing traders, and long term traders; long term, mid term, or intraday and short term.

Trends develop on every timeframe. There are divergences or moves away from the average on 5 second timeframes and there are divergences on daily, weekly, and monthly trading charts.

How to choose a timeframe to trade by is about to become easier for you if you follow these simple rules to trade by.

The hang eleven trading method we propose on this blog uses a MACD to help identify momentum. To see more on settings see our post index.

A MACD is an oscillator and moves above and below a zero line according to price momentum.

A touch of the zero line is a signal. At least it is to us. But alone it is worth very little. It isn't enough information to enter a serious trade in the direction of the momentum.

Suppose we are trading intraday....

For daytrading purposes short timeframes are of the essence. Sure, longer trends are important but a daytrader or short term trader, scalper, or whaterver name you prefer to give this type of gambler, is looking to get in and out in a day, give or take.

A daytrader might choose a timeframe of 15 minutes for a trend or a momentum shift that is diverging away from the mean. A trading day is usually full of support and resistance and this spells opportunity which can be monitored on shorter frames. A 5 minute, 1 minute, and even 5 second time frame can be used to find areas of resistance on the fifteen minute momentum trend.

If there is a long pause and retrace into the 15 minute chart and then a reversal indicating potential continuation of the trend then this will become apparent when the MACD on the short timeframes crosses above the zero line. These crosses are ereas to enter trades in the direction of the longer timeframe.

This same reasoning applies to mid term trader who might use an hour chart, with a 15 minute, 5 minute, and minute chart. And the same for the long term trader who may look to the daily chart for trend and follow up with trade into retracements on the 4 hour, hourly, and for super tweaking really short frames.

What's left to do if you know how to choose a timeframe ?

More important than choosing a timeframe to trade on is the ability to manage the amount of exposure you can put on a trade. Equally important is discipline to carry the trade to it's full potential.


All much easier said than done.

More on timeframes and trends...
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This blog is for education purposes only. Use this information at your own risk.

If you found this helpful let us know....leave a comment.

Cox Morality Naked Shorts Trading

Cox takes on naked shorts trading.

Cox on morality in trading naked shorts


Morality comes into question in this interview and when Cox is mentioned in the same sentence as trading naked one has to keep a wide stand on the opinions expressed herein.

This reporter from CNBC says it all in this pic which seems to show her in total disgust of the position posited on naked trading of stocks.

However trading naked stocks is not necessarily applicable to currencies.

A currency is neither long nor short and a position on a currency can be naked or without hedge.....click on image to watch the Cox Morality Naked Short Trading Video.


What will you see ?




Cox, " The goal here is to give investors confidence in the markets".

Cox, " where people don't even borrow the shares that they are supposed to deliver".

I personally don't get this point....care to enlighten me? please comment.

He's talking about illegal short selling of stocks and other financial instruments.

Meanwhile she, the interviewer seems totally disgusted. NAKED WHAT. Mister Cox.....????

Cox, " Naked short selling is very different than short selling in general...."


What I personally hear him saying here is that a short sell is generally an hedge on a long position and to short sell naked is generally a very high risk move which holds the potential for massive losses.

If so then I am on side with his morality issue towards naked short selling where the financial advisor or trader is holding, and gambling the funds of clients. ie. The pension dollars of your mother or grandmother. Gambling with fiduciary dollars is a criminal act and if it isn't then it should be.

However taking the right of a retail trader or a trader who trades his own funds away from him or her is equally an illegal act. IMO......

Morality trading naked shorts here is equal to knowing who'se money or financial security the trader is trading with.

Fiduciary may be the word to focus on here. However I don't recall the word being part of the interview.

Naked short selling at the time of the interview was not illegal, just very immoral....

The movie Shock Stock supposedly goes into some of the issues that arise when traders decide to drive prices to points where they bust out accounts that are near margin. Driving stocks well beyond their fundamental value is part of this game....

Do you still want to play ?

Do you still want to be a trader ?

Do you want to see some Ahole gamble with your mothers' pension ?

May2010 USDCAD 4hr chart analysis

The daily chart USDCAD was signaling a trend favouring the Canadian dollar over the US dollar.

In February 2010 the 4 hr USDCAD chart saw a signal confirming a continuation of the daily trend.

Our MACD picked up the signal at 1.045 on February 16. However by February 25 the USDCAD was being auctioned at a quote of 1.067. Initially it seems that we were wrong. Had we bought Canadian dollars on our 4hr signal we'd be a full 2 points out of the money on February 25.

Worst had we dumped our CAD's with a loss then we'd have watched a rally favouring the CAD all the way to USDCAD parity by April 21.

Playing the signal correctly is more important than finding the signal.

The hourly chart gives a clue as to how to load up on Canadian dollars in a period of resistance.

Is this a sure bet ?

Hardly!!!! Loading up inside a resistance to a longer trend is a common practice amongst traders. How much and when to accept that the resistance is actually support is what separates the winners from the losers.

Money management and risk aversion answers the question of how much and stop losses or hedging techniques protect the end results.

Hang Eleven is about riding waves naked. That means that this trading technique exposes the forex trader on one side of the trade with no protection other if the signal fails completely.

But we have ways to cover our nakedness really quickly. This will become evident in time.

Waves come in all sizes and one person once stated that nature never lies and by nature large waves expose nakedness in large ways.

Hang Eleven May 2010 Daily Analysis USDCAD

The date was May 6, 2009 and the Canadian Dollar was attracting traders way more than the American dollar.

This was just over one year ago and the trader sentiment overall remained strongly biased towards the CAD over the USD.

From 118 to 99 or parity USDCAD.

That was the story of the Canadian Dollar trading against the USD for that time period. The story was told on a wave on the daily MACD and there were plenty of bounces or retracements in that year.

Suddenly however it looks as though the USDCAD trend might be over for a time. On May 24, 2010 the USDCAD pair is quoting at 1.06 and if the sentiment towards the USD holds for the week at this level or higher then our daily convergence divergence indicator will have warned us that the next weeks or months favor going long the USD over the CAD.

Signals are just hints. They are not guarantees. So until the daily MACD closes at or above zero then we have to continue thinking that this is just a retrace into a daily rally favouring the CAD.

As such we look to lower timeframes for opportunies to sell USD and buy CAD. But we do so extremely cautiously as the MACD really looks like it is telling us that a reversal is about to play out.

To the four hour chart.

Hang11 post index

Here is our hang11 post index. This is a growing list and was started on May 23, 2010.



Hang Eleven is a free service which talks about trading forex. Hang Eleven does not make recommendations and we do not take responsibility for the losses you incur if you use this approach to trading forex or other financial markets.



Trading naked is highly risky and forex enthusiasts should print the risk warnings on their forehead before trading.



Our Hang11 post index :

1. HANG ELEVEN - the first post
2. Wave Formation - MACD and wave formation patterns
3. Hang Eleven MACD settings - the numbers used to generate wave charts
4. Hang Eleven trading strategy - the basics of our forex trading approach
5. May 2010 Daily analysis USDCAD - trending towards CAD
6. USDCAD Analysis 4hr chart - looking to a lower timeframe
7. Cox Naked Trading - morality and fiduciary responsibility, do you care for your grandmother?
8. Choose a timeframe - finding and betting trends
9. Timeframes and trends - the snowball effect
10. USDCAD - May 2010 Update
11. Two trading words - Margin Call
12. gbpjpy - hang eleven testing the 30 second chart, June 1, 2010
13. gbpjpy - results of 30 second chart set up and trade
14. gbpjpy - one minute chart setup
15. gbpjpy - one minute chart setup conclusion
16. convergence and divergence - Gerald Appel and the MACD

hang eleven trading strategy

Here we define the hang eleven trading strategy.

The settings used on the MACD for Hang Eleven are defined on this post.

The idea is always to find a trend on a longer forex chart and to move to a lower timeframe to seek successful forex trades.

But it isn't that simple...

On the lower time frame we are actually playing the role of contrarian trader. That is to say that we will enter trades that we expect to be losers for as long as the market returns to the trend momentum expressed on the longer frame.

Depending on the frame used the moves of resistance to the longer trend can be of many points. For example a resistance trend on a daily chart can be worth 10 or even 20 points. This means that feeding contrarian trades into such a resistance can seem futile but if done properly then every trade executed will pay for itself once, and if, the longer trend resumes and continues it's direction.

This will be explained in more detail later and be made evident with real time illustrated case points.

Trading forex or any other financial market is similar to swimming in a shark tank. Due diligence is the only real insurance that one can find when fighting the mite of money managers who need to defeat someone in order to make a profit for their clients.

Don't let yourself be a victim.....

Hang Eleven MACD settings

For the purpose of this study our Hang Eleven MACD settings are 52, 73, and 5.

The waves are created by a fast moving average of 52 periods, a slow moving average of 73 periods, and a signal line of 5 periods.

It looks this way on a daily forex chart.

The reason for using those hang eleven MACD settings is personal. The default setting for a MACD are 12, 26, and nine but the problem with using defaults is that those who would hunt stop orders look to these numbers and waves based on a default MACD can often deliver very wicked results such has only stop hunters could explain.

The waves created by the MADC settings on the daily serve to trade shorter time frames that also have the same MACD settings applied to them.

A wave formation

The MACD and a wave formation pattern.

MACD is an acronym for Moving Average Convergence and Divergence.

A moving average is simply a measure of currency or financial instrument price fluctuation over a set period of time. The MA can be applied to any time frame. A time frame is broken down into periods such that an hourly time frame is a graph or forex chart where each bar is a period of one hour.

The MACD is a technical indicator and considered to be a momentum indicator. The moving average convergence divergence momentum indicator was developed by Gerald Appel in the late 1970's.

As a momentum indicator the MACD is a wave formation tool which can be used to identify trends in trader sentiment.

A trend is one where there is divergence away from the mean or average. A price that diverges away from the moving average eventually converges back towards the mean.

HANG ELEVEN

The term hang eleven is found in the lexicon of surfers and refers to those wave riders who dare to go out and hang naked on the board. Hang 11 is one step passed hang ten.

This blog is not about physically surfing the waves on beaches of sand. It is however about trading waves in the forex market.

Trading naked is a term used by traders to define money put at risk without hedging the position.

Hang Eleven is a journal of trades which are carried out on the foreign exchange market where vast amounts of currency change hands every weekday.

We use only a few indicators with our own brand of numbers and watch the financial world unfold to see if there was money to be made trading fx.

We do not supply a signal service and remind the reader that trading this HANG ELEVEN system or any other system carries high levels of risk and should be done so by retail traders who understand risk management strategies as wall as the risk of using technologically driven trading platforms.

But if you dare trade naked with Hang Eleven on a forex practice account you might even dare trade forex on a real time trading account in once you experience success in fx.