Positive And Negative Divergencies In Trading

Divergencies are one of the mostly used concepts by traders regardless of what they are actually trading (currencies, stocks, etc). A divergence appears when price it is moving in a different direction compared with the oscillator/indicator you are comparing it with. So, in order to have a divergence, you need to have an oscillator/indicator to compare price with.

When price is rising and oscillator/indicator is falling it is forming a so called negative divergence, and such traders are looking to establish short positions based on this premise. The opposite is true as well: when price is falling and the oscillator/indicator is rising, this is called a positive divergence because traders look to establish long positions based on it.

From my experience divergencies are tricky, in the sense that price may stay in a divergence stance before reversing way longer than a trader can stay solvent. Anyways, divergencies are sound concepts and if used appropriate can be a valuable tool for any trader.

This part will show you examples with divergencies based on the relative strength index oscillator and what it is meant by positive and negative divergence, and it will have two recordings, one for each type.

For the purpose of looking at divergencies in a more complex way, taking into consideration more variables, on the next sub-chapter will try to see how price diverge from different indicators/oscilators, and we will look at CCI (commodity channel index) and DeMark oscillator for a change, explain them and see if it can be a comparison between those three.

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