Classic Bullish and Bearish Divergence PDF
indices classic divergence is used as a possible signal for a Indices trend reversal and is used by stock indices traders to analyze stock indices price movement and identify areas where the stock indices price could reverse and start going in the opposite direction. Stock Indices classic divergence setup is used as a low risk entry method when opening a indices trade or when exiting a indices trade.
Classic divergence indices trading strategy is a low risk technique to sell near the stock indices trading market tops or buy near the stock indices trading market bottom, this makes the trading risk on your trades are to be small relative to the potential reward. However, this classic divergence indices strategy is one technique with very many whipsaws & most traders do not recommend using it.
Divergence in Indices Trading is also used to predict the optimum point at which to exit an open indices trade. If you already have an open indices trade that is already profitable, a good method to identify a profit taking level would be to use the point where you spot this divergence indices trading setup.
There are two types of classic divergence, based on the direction of the current Indices trend:
- Stock Indices Trading Classic Bullish Divergence
- Indices Classic Bearish Divergence
Indices Divergence Scanner
Indices classic bullish divergence forms when stock indices price is making lower lows ( LL ), but the indicator is making higher lows (HL). The divergence indices example explained and illustrated below shows classic divergence setup.
Stock Indices Divergence Scanner - Indices Classic Divergence Scanner
This stock indices divergence example uses MACD indicator as a stock indices trading divergence indicator.
From the above indices divergence scanner example the stock indices price made a lower low(LL) but the MACD indicator made a higher low(HL), this shows there is a divergence between the stock indices price & the MACD indicator. This divergence indices signal warns of a possible indices trend reversal.
Classic bullish divergence stock indices signal warns of a possible reversal in the indices trend from downward trend to upward trend - because even though the stock indices price went lower the volume of sellers that moved the stock indices price lower was less as shown by the MACD technical indicator. This divergence indices signal indicates underlying weakness of the downward stock indices trend.
Stock Indices Divergence Scanner
Indices classic bearish divergence forms when stock indices price is making a higher high ( HH ), but the indicator is forming a lower high (LH). The indices divergence scanner example explained and illustrated below shows an example of the classic bearish divergence indices trading setup.
Stock Indices Divergence Scanner - Indices Classic Divergence Scanner
This divergence scanner indices example also uses MACD indicator
From the above example the stock indices price made a higher high(HH) but the MACD indicator made a Lower High(LH), this shows there is divergence between the stock indices price & the MACD indicator. This divergence indices signal warns of a possible indices trend reversal.
Classic bearish divergence indices signal warns of a possible reversal in the indices trend from upward trend to downwards trend - this is because even though the stock indices price went higher the volume of buyers that pushed the stock indices price higher was less as shown by the MACD indicator. This signals underlying weakness of the upward stock indices trend.
In the above example, if as a trader you had used divergence trade setup to trade you would have gotten good signals to enter or exit the trades at an optimal point. However, divergence indices trading signals just like other stock indices indicators, is also prone to whipsaws. That is why it's always good for indices traders using this stock indices trading setup to confirm the divergence indices trading signals with other indicators such as RSI, Stochastic Oscillator & Moving Averages.
An good indices indicator to combine divergence stock indices trading signal with is the moving average technical indicator, in this moving average trading indicator a trader should use the Moving Average Crossover System - Moving Average Crossover Indices System & Divergence Indices Trading
Example of Moving Average Crossover Strategy
Once the divergence indices signal is given, a trader will then wait for the Moving average crossover stock indices trading system to give a stock indices signal in the same direction of the indices divergence signal, if there is a classic bullish divergence signal, a trader will wait for the moving average crossover indices trading strategy to give an upward crossover indices signal, while for a bearish classic divergence stock indices signal the trader will wait for the Moving average crossover indices trading strategy to give a downward bearish crossover indices trade signal.
By combining the indices classic divergence trading signals with other technical indices indicators this way, a trader will be able to avoid indices whipsaws when it comes to trading the classic divergence indices signals, because the trader will wait until the indices trend has actually reversed & is already moving toward the direction of the divergence trade setup, hence the trader will not fall into the trap of picking market tops & market bottoms.
