Since Danielle is out this week for spring break, Allison Ostrander, Director of Risk Tolerance, will cover how she’s used her Divergent Bar indicator for short-term earnings trades. This tool has allowed Allison to take low-risk trades prior to an earnings announcement with a good probability of following through with a higher high. She’ll also review how this indicator signals the path of least resistance heading into the next quarter.
One of my favorite, and maybe one of my more versatile indicators, is the Divergent Bar Indicator. I have used this for intraday to long-term setups, and it has helped me take some of my best profits of the year so far.
What does the Divergent Bar Indicator do?
Depending on if it prints a Bullish (or Bearish) Divergent Bar, the indicator will give a good probability of the underlying price moving higher (or lower) than the bar that prints within the next three bars. This means on a 1-hour chart, I am looking for a higher high (or lower low) within the next three hours. With a Daily Chart signal, I would look within the next 3 days, and with a Weekly Chart within the next 3 weeks. This can be great for those who like to do more intraday 0 DTE expiration style trades or those who prefer swing trades.
Earnings Announcement Trades
One of the ways I have used this indicator this year is around earnings season. If I had a valid Bullish Divergent Bar prior to an earnings announcement, I would put on a low-risk trade that had a good probability of following through with a higher high.
One example of this around earnings is on META. We took a trade in the Profit Recycling Mastery with the idea we could pop up on the announcement and allow for a quick win on a small risk. We opened the trade off the Bullish Divergent Bar printing before the announcement for a 1.28 risk per contract. We then profit recycled the trade several times to lock in profits and create bonus trades. At the end of the trade, 2 days later, we walked away with a 13.31 profit per contract, or a 1039% return on risk.
Another earnings style trade was in my main account with a similar setup on GILD. GILD also had a valid Bullish Divergent Bar prior to the announcement. I decided to jump into a low risk trade at a .96 risk per contract. After the earnings announcement, GILD popped up following through with a higher high and ran right into daily resistance. I took the trade off for a quick overnight profit of 3.04, a 316% return on my original capital risk.
Bigger Picture
This isn’t just an indicator I use for quick intraday or overnight profits (though I certainly love to do so). It can also help clue me into bigger market moves that could occur.
A great example of this actually comes from a Yearly and Quarterly chart. Last year the market printed a Bearish Divergent Bar. After diving into the quarterly chart, I noticed a pattern start to occur that could signal further selloff in the 2nd quarter of 2023 and a potential follow through of the Bearish Divergent Bar that printed on the Yearly Chart last year. As we approach the close of Q1 and the potential bearish turn we may see next quarter, I also am starting to see a quarterly Bearish Divergent Bar attempt to print. This only adds to the probability that the signal of a move lower could follow through next quarter.
For anyone interested in this quarterly setup, feel free to join me in either the Free Trading Room at Simpler Trading or on my Twitch channel at twitch.tv/allisontrades on March 28th, 2023 after market close. You can also sign up to be notified through the Simpler Trading Youtube here. I will be going into this signal and potential targets to the downside in more detail.
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For a limited time, receive Allison’s Divergent Bar indicator for 30% off with our Tax Day Pre-Sale, now extended through Thursday, March 23rd! Use the coupon code: TAXDAY at checkout. Check it out here.
