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How To Spot Bullish Bearish Divergence

Authored On: 23-Jul-15

Last Modified: 23-Jul-15

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Article gives a detailing as to how one can spot bullish or bearish divergence signal on price chart of security using indicator such as MACD or Momentum

  • Bearish Divergence simply means the security price is RISING on price chart and technical indicator is falling at the same time. As the directions are opposite, we have Bearish Divergence

  • Bullish Divergence simply means the security price is FALLING on price chart and at same time, the technical indicator is rising. As the directions are opposite, we have Bullish Divergence.

  • See below figure shows how easy it is to spot the Bullish or Bearish Divergence

   Summary Lines:

  • Bullish and bearish divergences on price charts w.r.to technical indicators makes easy reading for possible price rise or correction impending

However, please note following points. . .

  • Price rise or fall may not be associated with any occurrence of divergence. In fact, divergence as shown above occurs only in few instances

  • Hence divergence is not a must before one concludes about possible rise or fall for price

 

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