Re: Please explain DIVERGENCES ..thanks.
yoshimura said:
Let's talk in case of MACD-Histogram
Divergences mean price trends and MACD-histogram point at different directions. Can someone explain how it occurs? When price is making higher highs and higher lows, doesn't the fast line increases ? If the fast line increases, doesn't the MACD-histogram increase too since it is the fast/MACD line minus the slow/signal line? How someone explain how can they go aganist each other?
If a chart can be provided, that would be amazingly fantastic and fantastically amazing. Thank you.
Divergence is defined in the dictionary this way: "to depart from the norm: to deviate". In the trading world it simply means a situation when a market and an accompanying indicator (that usually trend together) begin to go in opposite directions. This market condition will often precede a change in market trend. In and of itself a "divergence" in the market is a condition, but not a definite market signal.
A
bullish divergence occurs when prices fall to a new low while an oscillator fails to reach a new low. This situation demonstrates that bears are losing power, and that bulls are ready to control the market again--often a bullish divergence marks the end of a downtrend.
Bearish divergences signify uptrends, when prices rally to a new high while the oscillator refuses to reach a new peak. In this situation, bulls are losing their grip on the market, prices are rising only as a result of inertia, and the bears are ready to take control again.
Please see attached chart for examples of BULLISH & BEARISH DIVERGENCE!