Price/RSI divergence provides another source of confusion. Many mainstream publications about the tell you that this kind of divergence signals the end of the current trend. Some even list divergence as buy and sell signals! Divergence occurs frequently and it does not have any special significance. The divergence is just a part of its mathematical constraint, which is why Constance Brown made her own indicator with no upper and lower limitation
I realize that the published trading literature states that a is an indication that prices are about to rally. The implication is that a is an indication that an uptrend is about to commence. As you are now realizing, a only appears when the existing trend is down. If the trend is clearly down, why are we even thinking of buying? Wouldn't it be more prudent to be looking for a place to get short?
A signifies that the existing trend is down and the Bears are exhausted. We should be expecting a rally to sell into. If we have short positions, then we should exit some or all of the shorts, but not reverse to become long! Prices should rally or reverse to some degree before falling to new lows.
Inversely, when we see a divergence, the trend is up and we should probably expect a retracement to lower prices because the Bulls are exhausted. It is time that we should begin looking for a reason to buy.
A simple divergence means that prices have encountered enough resistance that they need time to consolidate their previous move. Once this has occurred.prices will resume their downward or upward march.
For these reasons I see divergences as a chance to get long when the in the is broken and vice versa with a . Mostly I pay attention to "Hidden" or DD- DD+ signals which are seen in corrective waves
I'm a bit puzzled by your first indicator, I see the ranges (80/40 and 60/20) which define up- and downtrends, but the values on the right don't seem to match. The indicator ranges between 23 and -13. Would you care to elaborate a bit?
The second indicator on your chart, is that by any chance Brown's Composite Index?
Great book, the best I've come across so far. I've read it a couple of times but keep discovering new things and insights. On the other hand, the level and complexity of it can be a bit intimidating for me as a novice. Me and chapter 2 aren't exactly best friends... :)