Intermarket Divergence Demo

In a recent article by Murray Ruggiero, Intermarket Divergence – A Robust Method for Signal Generation, the concept of generating signals based on the behavior of two correlated markets was discussed. Murray provided a simple, yet powerful, method for generating signals.

I would like to demonstrate the technique Murray demonstrated, below in the video.


The TradeStation WorkSpace and Strategy code can be found at the bottom of the article. Likewise, if you don’t use TradeStation there is a text version of the strategy code. It’s very simple and can easily be adapted to your platform of choice.

>> Download Source Code <<

About the Author Jeff Swanson

Jeff is the founder of System Trader Success - a website and mission to empowering the retail trader with the proper knowledge and tools to become a profitable trader the world of quantitative/automated trading.

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  • Alex Argyros says:

    The other thing I don’t understand regarding this system is the use of two different moving averages. I understand that you optimized the strategy and came up with the two moving averages, but I don’t understand the conceptual reason behind this idea. It seems to me that if one used two different moving averages on a single instrument, one would also get “divergences.” Wouldn’t a genuine divergence only occur when the two instruments (ES and YM, for example) had the same moving average?

    • This would be best answered by Murray, as he is the creator of both the concept and code. Here is my $.02 however. You could use two moving averages with one instrument, but all your information for taking that signal is coming from on market – your tradable. In this case we are actually using another market to signal trades. In other words, we are using data not directly related to the current price of the traded instrument. This might be analogous to using volume or $TRIN to generate signals.

  • Saucy Jack says:

    Thanks for making this video – I found it very helpful to follow, and thanks for ferreting out interesting trading ideas and sharing them with us.

    However, to play Devil’s Advocate, your optimized back-test result starts on January of 2009 through 2013. ANY S&P system that had a long bias during this period likely made money, as the S&P soared in value during this time period.

    You should compare the results of your system to a buy and hold strategy, or a random entry, to determine whether this approach truly adds value.

    • You’re absolutely correct. My demonstration was merely that, a demonstration of how to use the software. If I were to start tackling a trading concept with a bit more seriousness I would first extend the historical data to include both bull and bear regimes. I would also have a larger out-of-sample segment.

  • Paul says:

    4/8/15 …. Jeff:
    1. Thank you for this idea.
    2. However is it possible that in a roaring bull market that if you just enter any trade – at any time – that there would be a 55% to 65% chance that the trade would be profitable? Reversed in a certified bear market.
    3. After all what is so unusual about the YM $$ crossing above it’s 10 SMA when the ES is below it’s 31 SMA.
    4. Just glancing at the chart … the 2 MA’s on the ES and YM at the same SMA’s are almost identical – only off by an incremental amount.(possibly driven by a big – cap stock on the $INDU – but this would legitimately drive the YM lower with out necessarily driving the ES)
    5. When the coin flip is using a weighted coin … the outcome is not 50/50.


  • DaveW says:

    I enjoy your web-site and always appreciate different ideas but unfortunately I don’t believe the concept has any merit. I would suggest that a Spread be created between the two highly correlated data series. The Spread can then be analyzed for potential turning points and the system can go long/short the Spread or just take one-sided trades e.g. long SPY only.

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