Divergence occurs when the price of an asset moves in an opposite direction from an indicator, index, or similar asset. When the usual relationship between two items of interest doesn’t hold up, it signals a conflict. Something isn’t right, and it suggests a change may be coming. In technical analysis, divergence is often used with indicators, such as the CCI or volume. In this scenario, lower highs in the indicator and higher highs in the market could signal a reversal and should serve as a trigger for a trader to act accordingly.
Divergence is classified as either positive or negative, and both can signal that a major change in price could be happening. Positive divergence takes place when an asset’s price reaches a low point and the indicator rises upward. A negative divergence occurs when an asset’s price reaches a high point and the indicator drops.
When a single divergence occurs, it’s a warning signal and not necessarily a call to act. But when numerous divergences between markets, asset classes, or issues start to occur, these shifts need to be monitored closely as a major change may be on the way. All of new traders which trade on online platforms, like, www.101investing.com, want to know the quick-and-easy answer to the question: “What is divergence?” At its most basic level, divergence is a signal for change. The goal is to quickly identify what the new prevailing correlations are and to profit from them. These prevailing correlations will indicate where the price will go next, and successfully identifying the trend will yield profitable results.
But the truth is that there is plenty of nuance and theory around the concept of divergence – as is the case with most day trading strategies, it’s not something that can be mastered immediately. To master this and other concepts, it’s always best to complement your day trading education with trading labs or other type of mentorship environment. These allow new traders to gain practical experience without the risk of jumping into the market feet-first….