newbie divergence questions

I just wanted to know from some of the more experienced traders here if I am spotting divergence correctly. From the research I've done and the other threads I have compared my charts to, I believe my analysis correct; but I would still like some confirmation from some more experienced traders. Thanks!

tyler

Hi,

Someone will gladly help, but there's something wrong with your image mate.

There are two types of divergence, positive and negative. Positive is when the price is going down, but your indicator is going up. This would signal that bullish reversal is soon to follow.

Negative divergence is the opposite. The price is going up but your indicator is going down. This could mean bearish price move to follow.

From your example it looks like the indicators are following the price movement. They dip with price making the troughs in the indicators. I think you will find it on the lower time frames more than the daily and it won't be on all time frames-maybe a couple.

I don't think its something people hunt out to trade around but definetly helpful if you can spot it. Maybe im wrong but that is my take.

Mjp, Thanks for the reply. So I assume I drew the trendlines properly...
I don't trade with all these indicators, mainly just PA and S&R (that I've learned from the james16 chart thread). I kept coming across divergence here and there, and I decided to figure out what it was and how I could use it along with PA, fib rets, and S&R.

Anyways, thanks again!

tyler

You trendlines look fine, what needs to be remembered when trading divergence is that it is so much easier to see post the event ... just because price has made a new high but an indicator has not at that point, does not mean it is definitely divergence, a thrust in price again will pull what appears valid divergence into a normal appearance in a flash. Wait for price to confirm the indicator value, i.e. wait for peak to confirm in price before trusting the peak in indicator values, then you can look for a pull-back to trade what will hopefully be a sharp move.

Best of luck!

Remember that there is always divergence in a trend because it's a symptom of a trend, not the cause. Spend lots of time looking at divergence over many instruments. As Akuma pointed out, use it to confirm what price is doing, not to anticipate a turn and get in before price actually turns.

http://www.babypips.com/school/divergence_trading.html