Hello,
sir,the first on first chart is called "Negative convergence"...indicator has higher high..and price has lower-high----the Indicator is precisely given the Short-signal....
Negative divergence...means when price makes higher-high and indicator makes higher-lows....this for Sell....opposite of this .i.e positive Divergence for Buy....
the Indicator is may be based on Volume-Momemtm or Momemtm-volume.
Regards,
Jahan,
Yes, what you said is right. Indicator in the chart has given a sell signal.
But I think this cant be called convergence. Convergence means moving towards each other. Divergence means deviating from each other.
Theoretically If price deviates from indicator it falls under Normal divergence. And if Indicator deviates from price it falls under Hidden divergence. But both are divergences. Not convergence.
We trade divergence expecting a convergence. That is if a normal positive divergence occurred ( price lower low and indicator higher low ) we buy it, expecting price will pull back ( convergence )and match with indicator.
But again, even though price and indicator converged, it may not be profitable at all times. That is when convergence happens not because of price pull back but due to side ways movement in the price. If the price moves side ways I/o of pull back, price and indicator will converge naturally after certain period ( time period will be depending on your chart time frame and indicator period.
This is problem while trading divergences on Bounded indicators. This problem can be avoided only to an extent only when we have good understanding of the indicator we are trading, math's behind the indicator construction, and very important factor is how much time a divergence signal stands valid, which depends on the Indicator period we are choosing and time frame of the chart we are trading.
My view is, this problem in trading divergences which raises due to side ways movement in price, can be avoided when non bounded indicators like the one's posted in those charts are used.
Thank you.
