Divergence is used to help and remind investors to be ready.
- Divergence have two signals are Bullish Divergence and Bearish Divergence
-Bearish divergence is a resistance signal of uptrend,it shows us that the stock is about to fall now, because when the stock rise and have new high ,but indicators such as RSI,MACD,STOCHASTIC don't have a new high.
-Bullish divergence is a resistance signal of downtrend,it shows us that the stock is about to rise now,because when the stock fell and have new low,but indicators signal such as RSI,MACD,STOCHASTIC don't have new low the same as Bearish divergence.
Untill now i think you will wonder what i am talking about,ok now we have look in the chart stock SVI below.
by looking at this chart we know that the stock price of SVI rise,but the number of MACD or RSI don't rise to correspond with the stock price,this show that we have to invest carefully and pay more attention that the stock price have a tendency to fall, so you decide to sell or preparation to short sell is in your decision.
Now let's us come to have a look Stock VXX
From the picture VXX in the case of Bullish Divergence,the price of VXX went down,but the rate of RSI
or MACD going up high or have an opposite direction,so that is a signal to show us to prepare to buy stock,the return is probably more than 100%
For the case Bearish Divergence, the price VXX is rising,but the rate of RSI or MACD have an opposite direction and have a tendency to fall. It is a signal to remind us to prepare and consider to sell to make profit first.
Conclusion:
The understanding of Divergence,not only Bullish Divergence or Bearish Divergence can help to remind investors to be careful, and then prepare to buy or sell to make the most maximum profitable trade.
Wish you have a happy new year 2012!! cheers!
Written by Piseth Mao
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