DIVERGENCE is when the price of a scrip is moving in opposite direction of an indicator, usually an oscillator. It acts as a warning that the price trend may be getting weaker. It does not necessarily mean that the trend will reverse. It could signal an exhaustion of the current trend, the beginning of a period of consolidation or a medium to long term reversal.
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Divergences are classified according to their levels of strength. Type A divergences are the strongest, Type B divergences show lesser strength and Type C divergences are the weakest. Type A divergences usually present the best trading opportunities, whereas Type B and Type C mostly lead to choppy price movement or consolidation.
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TYPE A: Type A bearish divergences occur when price rises to a new high but the oscillator is only able to rise to a high that is lower than the previous high of the oscillator. The divergences of this type often indicate a reversal towards a downtrend.
TYPE B: Type B bearish divergences are formed when the price makes two equal highs or a double top and the oscillator makes a lower second top.
TYPE C: Type C bearish divergences occur when price rises to a new high but the indicator stops at the same level it reached during the previous rally.
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Divergences are important signals which can be used to book profits on existing positions or pulling up your trailing stop losses. NIFTY and BANK NIFTY both, are displaying bearish divergences on the daily timeframe.
Which type of bearish divergence do you see in NIFTY?
Comment below.
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Divergences are classified according to their levels of strength. Type A divergences are the strongest, Type B divergences show lesser strength and Type C divergences are the weakest. Type A divergences usually present the best trading opportunities, whereas Type B and Type C mostly lead to choppy price movement or consolidation.
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TYPE A: Type A bearish divergences occur when price rises to a new high but the oscillator is only able to rise to a high that is lower than the previous high of the oscillator. The divergences of this type often indicate a reversal towards a downtrend.
TYPE B: Type B bearish divergences are formed when the price makes two equal highs or a double top and the oscillator makes a lower second top.
TYPE C: Type C bearish divergences occur when price rises to a new high but the indicator stops at the same level it reached during the previous rally.
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Divergences are important signals which can be used to book profits on existing positions or pulling up your trailing stop losses. NIFTY and BANK NIFTY both, are displaying bearish divergences on the daily timeframe.
Which type of bearish divergence do you see in NIFTY?
Comment below.