Ah, divergence, the elusive creature lurking within the depths of technical analysis, ready to confound and bewilder even the most seasoned traders. Allow me to shed some light on this mysterious phenomenon.
Divergence is like the red flag waving in the wind, signaling a potential shift in the tides of price action. It occurs when the price of an asset moves in the opposite direction of an indicator, such as an oscillator or moving average. Picture this: while the price of your favorite stock is charging ahead like a bull on steroids, the indicator is whispering secrets of weakness, hinting that all may not be as rosy as it seems.
There are two main types of divergence:
Regular Divergence: This is the classic "divergence of opinion" between price and indicator. In a regular bullish divergence, the price forms HIGHER HIGHS while the indicator forms LOWER HIGHS, suggesting that the uptrend may be losing steam and a reversal could be on the horizon. Conversely, in a regular bearish divergence, the price forms LOWER LOWS while the indicator forms HIGHER LOWS, hinting at potential weakness in a DOWNTREND.
Hidden Divergence: Ah, the sneaky cousin of regular divergence. Hidden divergence occurs when the price and indicator move in the same direction, but with differing strength. In a hidden bullish divergence, the price forms higher lows while the indicator forms lower lows, indicating that the uptrend may continue despite temporary weakness. In a hidden bearish divergence, the price forms lower highs while the indicator forms higher highs, suggesting that the downtrend may persist despite temporary strength.
Now, before you go chasing after every divergence signal, remember: divergence is just one tool in the trader's arsenal. It's not a crystal ball, and it won't always lead you to the pot of gold. So, use it wisely! 📈🔍
Divergence is like the red flag waving in the wind, signaling a potential shift in the tides of price action. It occurs when the price of an asset moves in the opposite direction of an indicator, such as an oscillator or moving average. Picture this: while the price of your favorite stock is charging ahead like a bull on steroids, the indicator is whispering secrets of weakness, hinting that all may not be as rosy as it seems.
There are two main types of divergence:
Regular Divergence: This is the classic "divergence of opinion" between price and indicator. In a regular bullish divergence, the price forms HIGHER HIGHS while the indicator forms LOWER HIGHS, suggesting that the uptrend may be losing steam and a reversal could be on the horizon. Conversely, in a regular bearish divergence, the price forms LOWER LOWS while the indicator forms HIGHER LOWS, hinting at potential weakness in a DOWNTREND.
Hidden Divergence: Ah, the sneaky cousin of regular divergence. Hidden divergence occurs when the price and indicator move in the same direction, but with differing strength. In a hidden bullish divergence, the price forms higher lows while the indicator forms lower lows, indicating that the uptrend may continue despite temporary weakness. In a hidden bearish divergence, the price forms lower highs while the indicator forms higher highs, suggesting that the downtrend may persist despite temporary strength.
Now, before you go chasing after every divergence signal, remember: divergence is just one tool in the trader's arsenal. It's not a crystal ball, and it won't always lead you to the pot of gold. So, use it wisely! 📈🔍