Bar-to-Bar Divergence Strategy: A New Approach
by: Dexter M. Garcia (code: %H&S Divergence) An Overview of Divergence Divergence serves as a vital tool in technical analysis, aiding traders in identifying and responding to shifts in price action. It occurs when a technical indicator or oscillator moves counter to the price trend or overall price movement. Divergence patterns often indicate potential price reversals, whether negative or positive. Negative divergence manifests when an asset's price climbs while the indicator descends or exhibits bearish signals. Conversely, positive divergence arises when the asset's price falls, yet the indicator ascends or shows bullish signals. Conventionally, traders confirm divergence by connecting highs or lows on the price chart and corresponding points on the indicator, ensuring alignment. True divergence manifests when these connected lines exhibit clearly opposing slopes. Divergence signals hold greater significance in higher time frames but may prove less reliab...