Divergence
What is it?
Read this in conjunction with the
Simple definition: A divergence is when the price moves to a higher/lower point and the oscillator or indicator based on that price does not.
A bit more complex: Divergences also happen when the price moves to an equally higher/lower point while the oscillator doesn't.
A divergence occurs when:
| Price makes a: | Oscillator makes a: |
|---|---|
| Higher High | Lower High |
| Lower High | Higher High |
| Lower Low | Higher Low |
| Higher Low | Lower Low |
In the first 2 instances the divergence calls for a short trade and in the second 2 it calls for a long trade. Divergences are much easier to see in diagrams:
Here are some examples of DeltaT showing divergence trades against the 1 minute ES:
ES HH and DeltaT LH = Short
ES LH and DeltaT HH = Short
ES LL and DeltaT HL = Long
ES HL and DeltaT LL = Long
Final note
Higher highs and lower lows in price with divergence are often referred to as regular divergence. Lower highs and higher lows in price with divergence are often referred to as hidden divergence.
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