The Arizona Rules - Rob Booker

Divergence Trading Basics
These rules will supplement any other rules that you’ve ever learned about trading
divergence. Some of these rules seem to conflict with one another, but please keep in
mind that we are going to explain everything using interactive updates and chart school
updates over the next month, and in examples below. Here are the rules:
1. You only trade divergence (long or short) when the market is ranging.
2. A ranging market exists when:
a. The 62 EMA is in between the 200 SMA and the 800 SMA.
b. The candles have just hit the 800 SMA.
3. A ranging market exists UNTIL:
a. The 62 and 200 are clearly separated away from each other, and have both
crossed beyond the 800 SMA. This leads us to a trending market.
4. A trending market exists when the 62 has crossed the 200 which has crossed the
800.
5. It’s okay to draw divergence across the MACD trigger lines or the histogram.
NOTE: When trading divergence, you may want to use the following alternate
settings for the Stochastic and MACD:
MACD: 30, 65, 23.
Stochastic: 30, 10, 10.
These settings produce better divergence trades.
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