Different Types of Divergences in Technical Analysis

There are a lot of different strategies which are utilized by various technical analysts to generate accurate intraday sure shot Stock Cash Tips and Stock Option Tips. “Divergence Strategy” is one such strategy, which can be utilized to generate accurate buy as well as sell signals.

Divergence is the difference in actions between an Oscillating indicator such as RSI, MACD, CCI, etc. and the price action of the underlying financial instrument. Mainly there are two types of divergence i.e, Regular divergence and Hidden divergence. Regular divergence occurs when the price action makes higher-highs or lower-lows. This shows a weak spot in the price action which indicates that a possible trend reversal could take place, though it doesn’t indicate when this will occur. Regular divergence can be either bullish or bearish.

Bullish Divergence and Bearish Divergence

The bullish divergence happens in a down-trend when the price action prints lower-lows that are not confirmed by the oscillating indicator. This shows a weakness in the down-trend since selling is less urgent or buyers are emerging. Bearish divergence occurs in an up-trend when the price action makes higher-highs that are not confirmed by the oscillating indicator. This shows a weakness in the uptrend since buying is less intense and selling or profit taking is increasing.

Hidden Divergence: Bullish Or Bearish

Hidden divergence occurs when the oscillator makes a higher-high of lower-low while the price action doesn’t.  It indicates that there is still strength in the current trend which will resume. Like with regular divergence, hidden divergence can also be bullish or bearish.

Bullish Hidden Divergence happens during a correction in the uptrend when the oscillator takes a higher-high while the price action doesn’t. This indicates that there is strength in the uptrend and it can be expected to resume.  Bearish Hidden Divergence happens during a reaction in a down-trend when the oscillator makes a lower low while the price action doesn’t. . This shows that the selling has not diminished and that down trend is still strong.

Divergence Trading Strategy

Divergence trading strategy demands the trader to pay attention not only in the indicator, but also to price itself. According to Intraday sure shot stock cash tips of ProfitAim, traders are not advised to use trading indicators without consulting price. The benefit of hidden divergences is the higher odds of success, provided that it finds trades through the trend and not against it. Bullish hidden divergences show up oversold regions in an uptrend.  However, it is advised that instead of employing a fixed oscillator value to determine if prices are oversold, traders can use the previous low of the oscillator.

Thus we have seen the important types of Divergences, which can exist in the price charts and during price movements. Trading with the divergence signals is considered to be very effective, when all the rules of the trading strategy are followed. The divergence trading strategy has a high success rate, as compared to the other contemporary strategies.

The strategies like “Divergence Strategy” are being used by the technical analysts of renowned advisory firms like “ProfitAim Research”, to generate accurate intraday sure shot Stock Cash Tips and Stock Option Tips.