What is a regular divergence?
A regular divergence is cited as a probable indicator of a trend reversal.
There are two types of regular divergences: bullish and bearish.
Regular Bullish Divergence
Regular bullish divergence occurs when the price makes lower lows (LL) but the oscillator makes higher lows (HL).
This usually happens near the end of a DOWNTREND.
If the oscillator fails to produce a new low after forming a second bottom, the price is likely to rise, as price and momentum are generally expected to move in tandem.
The graphic below depicts a normal bullish divergence.
Regular Bearish Divergence
If the price makes a higher high (HH) while the oscillator makes a lower high (LH), you have regular bearish divergence.
An UPTREND can have this form of divergence.
If the oscillator reaches a lower high after the price makes the second high, you may definitely expect the price to reverse and decline.
The price reverses after making the second top, as shown in the graphic below.
As shown in the images above, regular divergence is best used when attempting to pick tops and bottoms.
You want to find a point where the price will stop and reverse.
The oscillator indicates that momentum is shifting, and that even though the price has hit a higher high (or lower low), it is unlikely to be sustained.
Now that you’ve mastered ordinary divergence, it’s time to move on to the second sort of divergence….hidden divergence.
It’s dubbed “hidden” because it’s hidden within the present trend.
More on this in the following section. Continue reading!
Next Lesson: Hidden Divergence