Classic Bullish Stock Indices Divergence vs Classic Bearish Stock Indices Trading Divergence
Classic divergence is used as a signal for a possible indices trend reversal and classic divergence is used by indices traders when they are looking for an area where stock indices price could reverse and start moving in the opposite direction. For this reason indices traders Trade this classic divergence signal as a low risk indices entry technique and as an accurate way of exiting out of a indices trade.
This classic divergence strategy is a low risk method to sell near the stock indices market tops or buy near the stock indices market bottoms, this makes the risk on your stock indices trades small relative to the potential reward. However, this is classic divergence strategy is one technique with very many indices whipsaws and most traders do not recommend using this strategy.
Classic Divergence in Indices Trading is also used to predict the optimum level at which to exit a indices trade. If you already have an open indices trade that is already profitable, a good way to identify a profit taking level would be the area where you spot this classic divergence setup.
There are 2 types of classic divergence setup - based on direction of the trend:
- Classic Bullish Indices Divergence
- Classic Bearish Indices Divergence
Stock Indices Trade Classic Bullish Divergence Trading Signal
Indices classic bullish divergence setup occurs when stock indices price is making lower lows - LL, but the indicator is making higher lows - HL. Classic stock indices trading divergence example explained and illustrated below explains this indices trading setup.
Classic Bullish Indices Divergence
This classic stock indices trading divergence examples uses MACD indicator as a indices divergence indicator.
From the above classic stock indices divergence example - stock indices price made a lower low - LL but the indicator made a higher low - HL, this shows there is a divergence signal between the stock indices price and the indices indicator. This classic divergence signal warns of a possible indices trend reversal.
Classic bullish divergence signal warns of a possible reversal in the indices trend from downward trend to upward trend. This is because even though the stock indices price went lower the volume of sellers that moved the stock indices price lower was less as is shown by the MACD indicator. This signals the underlying weakness of the indices downward trend.
Stock Indices Trade Classic Bearish Divergence Trading Signal
Classic bearish divergence stock indices trading setup occurs when stock indices price is making a higher high - HH, but the indicator is making a lower high - LH. The classic bearish divergence stock indices trading example explained and illustrated below explains this indices trading setup.
Stock Indices Trade Classic Bullish Divergence and Classic Indices Bearish Divergence?
This classic bearish indices divergence setup example also uses MACD indicator
From the above example the stock indices price made a higher high - HH but the indicator made a Lower High - LH, this shows there is a divergence signal between the stock indices price and the stock indices indicator. This classic indices bearish divergence signal warns of a possible indices trend reversal.
Classic bearish divergence signal warns of a possible change in indices trend from upward trend to downwards trend. This is because even though the stock indices price went higher the volume of buyers that moved the stock indices price higher was less as illustrated by the MACD indicator. This classic bearish divergence signal shows underlying weakness of the indices upward trend.
In the above example, if as a trader you had used divergence indices strategy to trade you would have generated good indices trading signals to enter or exit the stock indices trades at optimal points. However, indices divergence signals just like other stock indices indicators, is also prone to indices whipsaws - that is why it's always good to confirm the divergence indices signals with other technical indices indicators such as a Moving Averages & RSI indicators.
Stock Indices Trade Classic Bullish Divergence vs Indices Classic Bearish Divergence
