LT Pro Divergence:
This indicator can visually show the divergences on the chart – i.e. a divergence between price action and the momentum. So for example, when price makes a new low and the momentum does not make a new low, this is often a “bullish” divergence – indicating that the force of the downtrend could be weakening. Similarly, when the price makes a new high but the momentum does not make a new high, this is often a “bearish” divergence – indicating that the force of the uptrend could be weakening. Typically, trend reversals are often preceded by a divergence (although it is possible for price to change trend without a prior divergence). We can use divergence as an advance warning of when price may potentially change direction – whether a change in the trend direction or just a correction (or pullback).
It is possible for a divergence to be “negated” – which happens when price continues to move in its direction (i.e. in the direction of the major trend) despite a divergence. So often price can negate a divergence (e.g. a bullish or bearish divergence). This can happen quite a lot in strong trends with momentum.
Due to the numerous divergences that can occur on charts (often with many false signals or whipsaws) – it can be better to use divergence in combination with other technical analysis methods to increase the probabilities. For example, combining divergence with other trend reversal chart techniques such as: trendline breaks, moving average crossovers, break of support or resistance, or oscillators like MACD or RSI etc.
The red divergence colour can indicate a potential bullish divergence, blue divergence colour can indicate a potential bearish divergence. The indicator can also warn of potential divergences developing – so a magenta warning can indicate a potential bullish divergence and a yellow/orange warning of a potential bearish divergence.
The pro divergence indicator incorporates green and blue dots to show when RSI and stochastics is oversold or overbought. The RSI overbought/oversold is shown as dark blue dots – and the stochastics overbought/oversold is shown as green dots. This is added as an extra feature to add further information to the divergence signal. The momentum used in the indicator is the MACD.
The indicator can be used on the charts of the majority of markets (e.g. stocks, indices, ETFs, currencies, cryptocurrencies, precious metals, commodities etc.) and any timeframe. It should be noted that the degree of noise and randomness increases significantly on lower timeframes. So the lower the timeframe that is chosen (e.g. 15-min or lower) the greater the degree of noise and randomness and therefore the higher the frequency of false signals or whipsaws.
Chartists should be aware of the probabilistic and uncertain nature of price action and the markets, and therefore prepare to limit and control any potential risks.
All our chart indicators and video courses, including that mentioned above and any updates, are intended solely for education purposes (e.g. to increase your knowledge, learning and understanding of technical analysis) – they should NOT be construed as a recommendation to buy or sell any securities, stocks, futures, currencies, cryptocurrencies or commodities. Under no circumstances should the signals, labels, alerts, patterns or data of the indicator be construed as a recommendation to buy or sell any stock, currency, index, ETF, options, futures, CFDs, cryptocurrency or any security or market (as mentioned).
DISCLAIMER and RISK WARNING:
Trading has large potential rewards and also large potential risk. You must be aware of the risks and be willing to accept them. Don’t trade with money you can’t afford to lose. Simpler Markets Ltd (trading as Leadingtrader) is neither an investment advisory service nor an investment advisor. Data and information provided is solely for educational purposes. Nothing in the information and material provided should be construed as a recommendation to buy or sell stocks, futures, indices, forex, cryptocurrencies or commodities. The past performance of any trading system or methodology is not necessarily indicative of future results. Current analysis can change due to future market events. Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated – therefore anyone considering it should be prepared to lose their entire investment. While you may choose to act upon the information provided, at no time will Simpler Markets Ltd (SML) make specific recommendations for any specific person, and at no time may a reader or viewer be justified in inferring that any such advice is intended and in no way will SML ever assume liability for any losses resulting from your decision. Investing carries risk of losses, the market service that never makes mistakes does not exist. Information provided by SML is expressed in good faith, but it is not guaranteed. Please realize that investing in the markets demands recognition of the fact that error and uncertainty are part of any effort to assess future probabilities. Ask your broker or your advisor to explain all risks to you before making any trading and investing decisions. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.