Sun. Oct 24th, 2021

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Divergence Cheat Sheet

2 min read

The prominent concept in technical analysis is divergence. It outlines when the price moves in the opposite direction of a technical indicator. Divergence is categorized into regular divergence and hidden divergence. Each of them contains either a bullish or a bearish bias.

Let us now focus on divergence trading cheat sheet that will help us to mark regular and hidden divergence fast.

I. Regular Divergence:

A trend reversal is signaled by the regular divergences.

When the bias is bullish, the price is lower low and oscillator is higher high, then

  • It demonstrates underlying strength
  • Bears are weak
  • It warns about the trend direction change- from downtrend to uptrend

 

When the bias is bearish, the price is higher high and the oscillator is lower low, then-

  • It demonstrates underlying weakness
  • Bulls are weak
  • It warns about the trend direction change- from uptrend to downtrend

 

II. Hidden Divergences:

A trend continuation is signaled by hidden divergences.

When the bias is bullish, the price is higher high and oscillator is lower low, then:

  • It demonstrates underlying strength
  • It has good entry or re-entry
  • It takes place when retracements are in uptrend

 

When the bias is bearish, the price is lower low and oscillator is higher high, then:

  • It demonstrates underlying weakness
  • It takes place when retracements are in downtrend

 

When technical indicators are paired with momentum oscillators like Commodity Channel Index (CCI), Relative Strength Index (RSI), Stochastic, and Williams %R, divergences take place between price and any other data.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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