What is Divergence?
Divergence indicates to us that a trend is losing momentum and could be ready for a reversal or a deeper correction soon. When we see divergence, we should stop trading in the direction of the trend and look for countertrend trades.
How to identify Divergence?
When price is making higher highs, MACD (or RSI) will show lower highs = Divergence.
We can see that the last time we saw a big divergence was in late 2019 - early 2020s. We saw DAX lose over 40% of its value in less than a month.
We can see that we had another divergence recently and we're taking a tumble now. DAX so far have lost 5% of its value and could continue to lose a lot more.
We have a structure level which will be a key area to look for break or bounce. It is likely that we will break it due to the momentum behind the recent moves.
Trade Idea:
- Watch for bearish corrections and enter with stops above that correction
- Take quick profits on some of the positions and hold the rest incase we fall a lot more than last time
See below for our previous NASDAQ analysis which played out perfectly!
Goodluck!
Divergence indicates to us that a trend is losing momentum and could be ready for a reversal or a deeper correction soon. When we see divergence, we should stop trading in the direction of the trend and look for countertrend trades.
How to identify Divergence?
When price is making higher highs, MACD (or RSI) will show lower highs = Divergence.
We can see that the last time we saw a big divergence was in late 2019 - early 2020s. We saw DAX lose over 40% of its value in less than a month.
We can see that we had another divergence recently and we're taking a tumble now. DAX so far have lost 5% of its value and could continue to lose a lot more.
We have a structure level which will be a key area to look for break or bounce. It is likely that we will break it due to the momentum behind the recent moves.
Trade Idea:
- Watch for bearish corrections and enter with stops above that correction
- Take quick profits on some of the positions and hold the rest incase we fall a lot more than last time
See below for our previous NASDAQ analysis which played out perfectly!
Goodluck!