Please share your knowledge with us so we can all benefit
1) when you say that the price went lower with the second example despite the smaller gap between the TS and KS do you mean the depth of price continuing to the downside after the retracement in each case? i.e. the longer two large red candles in the second one?
2) Having spotted such divergences, could you explain how they can then be used / what is the interpretation? In this instance, for example, does it make the whole picture look more bearish?
2. Divergence that we talk about is between price movement and price acceleration. The assumption is that for price to reverse, it must:
So divergence is telling us that it is decelerating. So it is like an early warning sign.
Off course it could decelerate and then accelerate again so not every divergence will go trough a,b and c