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Divergence (part two)

now in comparison to the last publication, let us look at the most typical mistake made in classical TA about divergences


I picked in the last article an example for a specific reason

look at the same chart and now to the very right:



don't we have a very similar setup just three weeks later near the same price zone?


a nice CCI divergence again and a nice divergence with the price line higher

in addition we even have an inverse Vegas on the turbo


and yet , why was the end result prices going higher and it being a loser:



let us investigate:


be precise!!!


lets draw the CCI highs in alignment with the price bars

take the confirmed CCI divergence bar to be extra sure

and double verify:



may be just a statistical regular loser?

far from it


one can't take divergences out of context in regards to time and direction

and that in a top down approach of importance as discussed in the last presentation


what's different this time around is that we are looking counter directional while the previous signal was a direction continuation play


In scenario A prices were below the upper boundary of a directional down trending market and we were looking for a continuation play:




in scenario B Prices were above that trendline after a successful breakout and a "V" formation that defines a successful directional change


not only did we change from a downtrend but through the "V" formation we immediately had established a long trend and even skipped the sideways phase

with the "V" formation promising higher highs:



so in the case of the divergence establishing over the last few days we are dealing with a counter-directional divergence that needs to be treated much differently in evaluation and the failure of this divergence to predict a price is to be expected


in short,

various distinctions need to be made about divergences with accurate use and detailed process instructions and most of all viewed in a larger context otherwise the use of divergences is useless

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