Lesson 13: Divergences

The MACD inidicador is really important to apply the divergences that

appear in the market, identifiable become a key tool for your operation and
the evaluation of all trades.

The divergences help us to identify in the MACD indicator, when a run begins
to lose strength compared to the previous one, when there is a probability of a
change of direction, there is a deep recession, a crossing of the Midline, etc.
Remember that it is all movements there can be a lot of money.

What are the divergences?

The divergence is nothing more than the comparison between what happens
with the price pivots and what the pivots do in the BB's. When there is no
agreement on both sides when we talk about divergence.
Divergences in long and short

It is important to keep in mind when we are evaluating a divergence to take a

long or short operation.

When the market has bullish runs and reversals, we will use the divergences
to identify a possible wear, immediate impulse change or simple regression.
So, in bullish impulses we are going to say that we have divergence in favor of
a short one.

For the divergences in favor of a short one we look at the pivots that make
resistance (ceilings or major maximums).

When the market has bearish runs and reversals, we will use the divergences to
identify a possible wear, immediate impulse change or simple regression. So, in
bearish impulses we are going to say that we have divergence in favor of a long.
For divergences in favor of a long we look at the pivots that support (floors or
m i n i m u m s ) .

Types of divergence

We must bear in mind that one in a divergence the BB's will NEVER
overcome the previous pivot. So, basically there are two types of divergence:

• Edge Divergence: When the price reaches the previous pivot (edge) and does
not exceed it.

o Edge: price level where the previous pivot arrives.

• Divergence breaking: When the price exceeds the previous pivot (edge).

Remember in both cases the BB's do not exceed or reach the previous pivot.
When is a divergence canceled?

Divergences are canceled when the following occurs:

When the price clearly crosses the MidLine.

Lesson 13 exercises:

Divergences in long and short

• 5 examples of divergences in favor of a long.

• 5 examples of divergences in favor of a short film.

Types of divergence

• 5 examples of Edge divergences.

• 5 examples of breaking divergences.

Cancellation of divergences

• 5 examples of divergences canceled by MidLine crossing.

• 5 examples of divergences canceled by crossing BB's in the ZeroLine.

Remember that we want to see a clear break of the MidLine. From 3 ticks is
considered a technically valid break.

When BB's Cross the ZeroLine.

When Midline and Zeroline breakdowns are popularly known as an immediate

change of momentum, these breaks often have an impulse in the same direction as
the market, however, the divergence seeks to relate two runs that go towards the
same direction, when a break of ZL and ML occurs, a run would be generated in a
direction opposite to the one we are analyzing, therefore, the divergence would be
canceled.

Aspects to take into account in the divergences

There are characteristics in a divergence that usually show us a greater loss of

strength; that the divergence is formed with a double floor / roof, that the
divergence is formed in an important area or that the market really does change
frequently.
Double floor / ceiling pattern and divergences: the reverse pattern with which we
will most find each other when we identify a divergence is with the double floor or
ceiling, since the market always tends to generate these decision points.

Important areas of support or resistance and divergences: when the market

generates many decision points or pivots in the same price, we talk about areas, if
a double floor / ceiling pattern is generated in one of these important areas and
besides that, the MACD form a divergence, the probability of changing direction is
greater.

Market types and divergences: we must be careful with the market context when
analyzing divergences, since as the divergence is a tool to take trades of wear, we
have to make sure that the market actually if it is wearing out or is changing
direction frequently, which indicates that we are in a market that respects
divergences; In general, in the trend markets we will see many divergences that do
not work because of the context or behavior that the market has had. The same
concept applies to SOM markets.