Trading Medium-Term Divergences by Sylvain Vervoort
Detect medium-term divergences by using the
zero-lagging exponential moving average,
support and resistance lines, and trendlines.
When a stock price and an oscillator
move in the same direction itís
known as a convergence. When
price and oscillator move in opposite directions, itís known as a divergence. In
looking at the lows of the oscillator and comparing
them with the lows in price, we can define
three different situations (see Figure 1):
■ When the price and oscillator make higher
or equal bottoms, they converge. Until there
is no other indication, the most probable
price move is a continuation of the uptrend.
■ When the oscillator creates a higher bottom
while the price makes a lower bottom,
they diverge. This is mostly found at
the end of a downtrend, indicating an
■ When the oscillator has a lower bottom
while the price sets a higher bottom, they
diverge. This is mostly found in a price
uptrend after a price correction, indicating
a continuation of the uptrend.