Trade setup for $JPY Classic Over/Under Divergence

This is a trade setup i have been learning to use for some time and is an ideal tool as part of a overall trading strategy and lends itself particularly to Median Line trading as it helps identify tops and bottoms in the market. It is not a trading system on its own and should be used in conjunction with other high probability setups/indicators such as BollyBands(in this case), Fib levels etc. plus of course a ML (centre line, lower or upper ML parallel, warning line, trigger line, MPL and even a trend line). You should always seek to confirm in more than one time frame.

It takes practice but seems to have a pretty high success rate with low risk (close stop). I would be interested to hear from anyone else who uses this setup viz-a-viz any refinements i could make. This example of a top is from last Friday 19 Feb 2010 in a 4hr $JPY chart.

Use a double stochastic in one window. a 7-3-3 (SMA) and a 21-10-4 (SMA).

1. The market tests a previous swing high (& there s/b a divergence between price & stoch)

2. The 7-3-3 stoch must be making a lower high than on the previous swing high

3. The 7-3-3 stoch must be below the 21-10-4 stoch on the most current swing high but above it on the previous swing.

4. You do nothing until the test bar occurs ( signalled with down arrow) then the next bar(confirmation bar-'ticked' in chart above) must make a lower low and take out the low of that test bar.

My observations are that the 7-3-3 stoch can be just 'kissing' above /alongside (but still above) the full 21-10-4 stoch on the first high. The same goes for the signal lines. After the confirmation bar the 7-3-3 should fall away. This can and should be confirmed in more than one time frame....see the 1hr. I had a trade setup/plan here which included Bollinger Bands ( see above) and also ML's and one other EA.

I am grateful for this setup which was originally illustrated and described by trader "Birdman" in 2003 on www.dacharts.com. He also does a trendline lecture (MP3 file + slides) on the same site which is excellent.