zTheory: Hidden divergence with MACD. A real-time example.

FX:AUDUSD   Australian Dollar / U.S. Dollar
302 5 8
Here's a real-time example of a "hidden divergence" between MACD and price. I'd like to share the way I translate it into a human language.

You are aware of the "effort versus result" rule, right? Such as, you expect your car's engine to start when you turn the key or to feel warmer when you put on a sweater. I guess you are. So think of MACD as of an effort indicator.

Now please notice that point 6 is higher than point 5. That means more effort to the upside. Comparing this with what price did, we see that a new high was made. This is perfectly normal, since upside efforts bring upside results.

In the second case, however, following the same logic, we see more downside effort at low 8, as opposed to low 7, which did not result into low 4 being lower than low 3. In other words, despite all of the downside pressure, price was very strong and is likely heading higher.

Hope, you will find this helpful and let's see how this plays out.

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Comment: Please sqeeze in the MACD's vertical scale for a better view.
Interesting analysis but the MACD is actually diverging with price since March 4th so the price is going down regardless of the "minor" divergence you point out which is more limited in time in respect to the bigger picture
Yup, seems not every divergence works equally good.
+1 Reply
Divergences are amazing to trade :D
thanks :)
+1 Reply
Nice translation info human language :)
+1 Reply
I think it helps when I can see more than a mathematical formula in all this. After all, price is a living being, she's breathing.
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