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Chapter 18, Part I. Divergence Intro. Page 5

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 21, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Aug 28, 2009
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    Skewed divergences

    This kind of divergence is a continuation patterns, rather than a reversal one. The major difference here with common divergence is the indicator and price exchange their places – on bullish divergence, the indicator makes a lower low, but price does not. On the bearish divergence, the indicator makes higher high, but price does not:


    As we’ve said almost in the beginning of our School – “The trend is our friend”. So skewed divergences could let you estimate continuation of a trend. If the market was in uptrend then turns to some retracement or range trading and then you see Bullish hidden divergence – this could allow you to jump in. In general, this type of divergence is rarer than common one. The logic that is the foundation of this divergence tells that although the indicator shows strong momentum in continuation previous move (down) – sellers are not able to push prices lower than previous lows. Usually the second bottom stops at some deep Fib support – 0.786 or 0.88. And this is tells us that the market is stronger than it seems based on the indicator.

    The same is true for bearish divergence.

    Pipruit: Wait a minute, Commander. Let me clarify that a bit further. Say, market in downtrend, then we should see that market creates lower highs, but indicator creates higher highs, and it means that down trend will continue, right?

    The same is for up trend. Market shows higher lows, while the indicator shows lower lows – it tells that the uptrend will continue?

    Commander in Pips: That’s right.

    P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive should answer soon.

    Note: FPA ranks are earned in the battles against scam, not in the classroom.
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