In technical analysis we heard of term "Divergence" many times. Today we will understand some basic concept about divergence.
Divergence : It can be define as whenever there is a misunderstanding b/w price n indicator they used to get divert from each other and moved in opposite direction to each other.
In this post i will show you 2 types of divergence :
1) Classic
2) Hidden
1) Classic Divergence: It can be define as whenever price make a new high(low) while indicator does not follow the price pattern n make lower high or higher low. It can be easily understood with an example.
Above is the hourly chart of nifty , classic divergence is shown with blue line ;Nifty made a new high after passing previous high of 8141 but not able to sustain at higher level n made a high 8180 While indicator does not make new high when nifty make New high of 8180. This is called as classic negative divergence. After which nifty falls down.
We can calculate divergence target also. It has many way to calculate but i will show one of my method to use for calculation. It is just simple maths ,get the highest value(highest peak(8180)) n lowest high (trough(8050)) ; subtract trough from peak
i.e. 8180-8050 = 130.
Now subtract it from lower end i.e.
8050-130 = 7920.This is our estimated target. Market made a low 7925 n reverse.
Another method is calculate difference b/w 2 peaks & subtract it from trough for target zone.
here first peak is 8141 & second 8180 n trough low 8050.
So, 8180-8141 = 39
8050-39 = 8011 which would be our probable target zone.
Special Note :
1) One should keep in mind that as long as difference b/w the 2 peaks(no. of candles) should be less the more stronger would be reversal in terms of price n time both.
2)Above method is fruitful in every time frame.
3) Above calculation is for negative divergence same can be use for positive divergence ; instead of subtraction we use addition in calculation.
2) Hidden Divergence: It can be define as when indicator make a new low but price doesn't make new low this type of divergence occurs. It can easily be understood by example:
Above is the Hourly chart of Bank Nifty. There are 2 hidden divergences first one is marked with black line n second with blue line . As the name suggest they cannot be easily witness n understood once in view but with expertise one can gain big move as they are the most powerful types of divergences n usually occur in trending market n give sharp reversal as u can view in above example.
Above is another example of hidden divergence in hourly chart of Castor Seed.In this chart one can easily witness that price doesn't make new low but indicator make a new low after that price show sharp reversal in terms of time n price both.Also there is a good support at that zone 4315-4325 range shown by horizontal blue line. Price took support at that level n bounces back .
Special Note:
1) Steeper the angle b/w peaks(troughs) in price n indicator both; more powerful reversal chances are there.
2) There is no specific(theoretical) method to calculate target but one can use both method as shown above in classic divergence for rough estimated target.
Disclaimer: Method shown above is only experienced while trading n analyzing shown here for Educational purpose;One should expertise before applying method to their trading system.
Market is subject to risk. Please consult your adviser before investing.
Divergence : It can be define as whenever there is a misunderstanding b/w price n indicator they used to get divert from each other and moved in opposite direction to each other.
In this post i will show you 2 types of divergence :
1) Classic
2) Hidden
1) Classic Divergence: It can be define as whenever price make a new high(low) while indicator does not follow the price pattern n make lower high or higher low. It can be easily understood with an example.
We can calculate divergence target also. It has many way to calculate but i will show one of my method to use for calculation. It is just simple maths ,get the highest value(highest peak(8180)) n lowest high (trough(8050)) ; subtract trough from peak
i.e. 8180-8050 = 130.
Now subtract it from lower end i.e.
8050-130 = 7920.This is our estimated target. Market made a low 7925 n reverse.
Another method is calculate difference b/w 2 peaks & subtract it from trough for target zone.
here first peak is 8141 & second 8180 n trough low 8050.
So, 8180-8141 = 39
8050-39 = 8011 which would be our probable target zone.
Special Note :
1) One should keep in mind that as long as difference b/w the 2 peaks(no. of candles) should be less the more stronger would be reversal in terms of price n time both.
2)Above method is fruitful in every time frame.
3) Above calculation is for negative divergence same can be use for positive divergence ; instead of subtraction we use addition in calculation.
2) Hidden Divergence: It can be define as when indicator make a new low but price doesn't make new low this type of divergence occurs. It can easily be understood by example:
Special Note:
1) Steeper the angle b/w peaks(troughs) in price n indicator both; more powerful reversal chances are there.
2) There is no specific(theoretical) method to calculate target but one can use both method as shown above in classic divergence for rough estimated target.
Disclaimer: Method shown above is only experienced while trading n analyzing shown here for Educational purpose;One should expertise before applying method to their trading system.
Market is subject to risk. Please consult your adviser before investing.
