Stocks & Commodities V. 22:4 (22-28): Volume Divergence by Hal Masover

Stocks & Commodities V. 22:4 (22-28): Volume Divergence by Hal Masover
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Stocks & Commodities V. 22:4 (22-28): Volume Divergence by Hal Masover

Divergence in volume and price give clues to future price movement.

One of the first things I learned about trading was to search for divergences. Briefly, divergence simply refers to the circumstance of price going one way but not being confirmed by any number of possible other confirming indications.

The first one I learned to use and still like is stochastic divergence. This was developed by George Lane and is available on virtually any charting software. In Figure 1, I have reproduced stochastic divergence on a fiveminute chart of the Standard & Poor’s 500 index from April 10, 2003.

See how the price makes three consecutive lower lows from the previous afternoon low labeled 1, 2, and 3? Now look at the stochastic indicator right below the chart. The indicator makes higher lows over this same time. This is divergence.

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