How to Read Divergence in Indices Trading
How to Read Divergence in Indices Trading? - Divergence stock indices trading setup is one of the indices trading strategy used by indices traders - divergence indices trading involves looking at a indices chart & one more stock indices indicator. For our indices divergence example we shall use the MACD indices indicator.
To identify this indices divergence setup find 2 chart points at which he stock indices price makes a new swing high or a new swing low but the MACD technical indicator doesn't, thus illustrating a stock indices trading divergence between the stock indices price & momentum.
To look for divergence stock indices signal we look for 2 chart points on a indices chart - two stock indices price highs which form an M shape on the stock indices chart or two stock indices price lows that form a W-Shape on the stock indices chart. Then look for the same M-shape or WShape on stock indices technical indicator that you use to trade indices - for examples RSI indicator or MACD indices technical technical indicator.
How to Read Different Types of Divergence Trading Signals
In the stock indices chart below we spot two chart points, chart point A and chart point B - swing highs. These two chart points form an M-shape on stock indices trading chart.
Then using MACD stock indices technical technical indicator we check the highs made by the MACD technical indicator, these are highs that are directly below point A and point B.
We then draw one line on the stock indices chart & another line on the MACD indicator.
How to Read Divergence in Indices Trading - How to Read Indices Divergence Signals?
The indices chart above shows example of one of the four different types of indices divergence trading setups, the indices divergence trading setup above is known as hidden bearish indices trading divergence.
How to Read divergence indices trading setup
In order to Read divergence stock indices signal we will look for the following:
- HH - Higher High - two highs but the last one is higher
- LH - Lower High - two highs but the last one is lower
- HL - Higher Low - 2 lows but the last one is higher
- LL - Lower Low - two lows but the last one is lower
First let us look at the explanation of these indices trading divergence terms:
M shapes on Indices charts
How to Read Divergence in Indices Trading - How to Read Indices Divergence Signals?
W Shapes on Stock Indices charts
How to Read Different Types of Divergence Indices Trading Signals?
Example of M Shapes on Indices Charts
How to Read Different Types of Divergence Indices Trading Signals?
Examples of W Shapes on Stock Indices Charts
How to Read Different Types of Divergence Indices Trading Signals?
Now that you have known the indices divergence trading terms used to explain divergence indices trading setup. There are 2 different types of indices trading divergences which are:
- Classic Indices Divergence
- Hidden Indices Divergence
Classic divergence setup and hidden divergence trading setup are explained on learn indices trading tutorials located in main navigation menu of this learn indices site - under topics learn indices trading lessons.
Read Indices Divergence Signals
