Bullish/ Bearish Divergence

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Jaychia (Trainer) responded
Glad you ask this question!
I think this issue arises due to the fact that recently, a lot of bearish divergence failed.
So I guess there will be 2 sets of question will ask for divergence signal.

1) If the trend is uptrend and I see bearish divergence signal. I should not go long
Ans: You still can go long. Bearish divergence signal is just a warning sign and it could fail. Hencefore, this warning sign tells you to be cautious with this counter. Cautious does not mean do not enter, it means be careful and if there is a need to stop out the position, please do so. In this kind of situation, my action plan normally will be reduce my position when i enter this position.
Note: Vice versa for Bullish divergence.

2) How will we know divergence signal fails?
Ans: The theory is that if the trend does not reverse, the divergence signal fails. So what does it means in layman term? Base on our current example on bearish divergence, to confirm bearish divergence signal that has failed, these are the requirements:
- Higher high is formed (Price breaks recent high)
- After the new higher high is formed, the indicator must also shows a higher high. If lower high in the indicator, while price movement is higher high, it means bearish divergence still in play.
* Note vice versa for bullish divergence.

rich00166 wrote:

Bearish Divergence



Trainer,

I find it hard to convince on bearish/bullish divergence signal. Whilst I know it only serve as a warming, more often it doesn’t help or rather causing me to miss the opportunity to enter or exit too early.

Look at Hkland for example:
1) Excellent bull trend since mar and still moving up. The MACD histogram and also the signal has been flagging lower high since May!
2) Likewise if I look at weekly chart, divergence displayed since May and the MACD bearish crossover just about to start. Today the counter continue to bull !!!



Appreciate any feedback.