In the right hands, divergence and convergence can help identify turning points on the price chart. In this post, I will try to tell you everything I know about these market phenomena on the chart. Let's go.
I propose to immediately define the terminology. It so happened that for some reason traders practically do not use the concept of convergence ( convergence), but generalized under one term - divergence ( discrepancy). In this case, the divergence is divided into two types: bullish and bearish. I think this is due to the fact that divergence did not mean the type of deviation of the chart ( divergence or convergence), but the discrepancy between the data of the price chart and the data of the indicator in principle. This, in my opinion, is incorrect. Therefore, within the framework of this post, I will call a spade a spade, and use the terms divergence and convergence. Now to the point.
Indicators are used to search for divergences and convergences. The most popular are:
- MACD histogram
- Stochastic
These indicators are available in any trading terminal. Since I trade through , then all the examples in the post will be using this terminal.
Divergence
Divergence, in trading, is called discrepancy price chart with indicator chart. Those. when the price draws new highs, and on the indicator chart, each subsequent high is lower than the previous one
Considering that most traders usually summarize divergence and convergence in one term - divergence, then this type of divergence, in slang, is called bearish.
Divergence using the indicator MACD histograms, looks like that:
The rules for finding divergence are very simple. In order to determine it, at least two ascending highs on the price chart and two descending highs on the indicator chart are sufficient. Visually, this looks like a divergence, which is what a divergence is. At the same time, the MACD histogram, as in the example above, should be in the positive zone: above the zero value.
For other indicators, the rules are identical. This is what the divergence looks like on the indicator RSI:
And so on stochastics:
As you have already noticed, divergence predicts at least stop movement, or ( In most cases) correction or reversal previous trend. Those. in other words, it acts as a turning point, after which you can make certain decisions in which direction to trade, or what to do with already open positions.
Divergence Trading Rules
If the divergence is identified: there are at least two successively ascending highs on the price chart, and two successively descending lows on the indicator, then the entry can be made in the most obvious ways:
- Entry on the next candle after the second high on the indicator chart
It means the following:
- The first local maximum on the price chart and the MACD histogram chart
- The second local maximum on the price chart, and the second local maximum on the MACD chart, which is lower than the previous one. The candle that coincides with the divergence identification point is a signal one, and after it closes, you can immediately open a sell trade.
- Sale. Stop is set above the local maximum. Here you can make a note. If the market, like all standard breakouts, is really going to work out a divergence, then the movement is usually intense, without rollbacks. Then it is advisable to further reduce the risks, and place the stop not at the local maximum, but at the maximum of the signal candle. I usually do this.
Also, for those who like to look for confirmation of the entry, you can enter on the breakdown of the previous local minimum:
If you find it difficult to find a signal candle on linear indicators such as RSI and stochastics, then display them in the terminal settings as a histogram. Also, in the settings, I recommend marking it with a different color, as in my examples with the MACD histogram. So it will be much easier to visually determine the highs and lows of the indicator than if it were one-color.
Convergence
Convergence in trading is called convergence price chart with indicator chart. Those. when each subsequent minimum is lower than the other on the price chart, and higher on the indicator.
As I said above, basically, traders refer to convergence as bullish divergence. Convergence on the MACD histogram looks like this:
The appearance of convergence implies at least a stop of the fall, a correction, and in the ideal case a reversal. Those. it's as much an event as a divergence to think about. But, if in the case of divergence, you need to secure purchases, then when convergence appears, you need to protect the opening of a sell trade.
Convergence on RSI:
Convergence on stochastics:
Convergence Trading Rules
Convergences are traded similarly to the rules as if you were trading divergences, but exactly the opposite. Using the MACD histogram as an example, convergence trading would look like this:
The example above shows an entry on a signal candle, i.e. the candle on which the convergence identification point appeared. The entry is carried out immediately, after the closing of the signal candle, with the stop loss at the local minimum of convergence. The next step is position management.
For especially cautious and confirmation-loving signals, you can enter on the breakdown of the local maximum, after the formation of convergence. This entry looks like this:
The algorithm is just as simple:
- Waiting for the signal candle
- We are waiting for the formation of a local maximum and its breakdown
- You can set a stop either at a local low or at the low of a breakout candle to further reduce the risk of losses in case the convergence does not work out
That's all. These are the main special cases of defining and working on divergences and convergences. Now let's look at the features.
Features of trading divergences and convergences
In order not to continue to deliver the post to the sheet :) which already turned out to be too long, further, I will consider using one example as an example. After all, both divergence and convergence are mirror images of each other, so the rules will be identical. So.Divergences and convergences are of high order, i.e. There can be several local maxima or minima, at least three, at least five. Example:
Such divergences and convergences that have more than two extremes are, in fact, broken. Because define triple, quadruple, etc. divergence or convergence in retrospect is not possible, the trader needs to apply decisions after the fact. I do not recommend working out divergences and convergences that have more than two tops. This usually results in losses. To understand clearly, just look at this screen:
The hurried ones, who will enter immediately at the signal candle, will be dropped off in the footsteps, and more than once. And those who will wait for the breakdowns of local highs will simply not wait for them, and they will sit in the cache, which for this situation will be the best option. The conclusion that can be drawn from this - do not rush. This conclusion applies to trading in general :)
Another feature that divergences/convergences can have, using the example of the MACD histogram indicator, is divergences/convergences with zero crossing on MACD.
Crossing the zero mark of the MACD histogram does not cancel the presence of divergence. There is a divergence. Another question is how the trader will work it out :)
Often, traders ask themselves the question: on which timeframes should I trade divergences/convergences? The answer is very simple. You can work on any, understanding the features of short, medium and long timeframes. There are no restrictions on timeframes for working on divergences and convergences, because they exist in all time periods.
I summarize
- Divergence - a divergence of the price chart from the indicator chart. The price draws new highs, and each subsequent high is lower than the previous one on the indicator chart
- The appearance of a divergence predicts a halt in growth, a local downward correction, or a trend reversal.
- Entering the sale, after identifying the divergence, is carried out either at the opening of the next candle, after the signal one. Either on the breakout of the local low, or the breakout of the low of the internal candle
- When working out the divergence, stops are set either at the local maximum, or at the maximum of the breakout candle, when the local minimum is broken
- Convergence - convergence of the price chart with the indicator chart. The price draws new lows, and on the indicator chart, each subsequent low is higher than the previous one
- The appearance of convergence predicts a stop of the fall, a local upward correction, or a trend reversal.
- Entry into the purchase, after identifying the convergence, is carried out either at the opening of the next candle, after the signal one. Either, on the breakout of the local high, or the breakout of the high of the inner candle
- When working out convergence, stops are set either at a local minimum, or at the minimum of a breakdown candle, when a local maximum is broken.
- Divergences and convergences are of high dimensionality. It is better to refrain from trading these kinds of divergences/convergences
- If there are open positions and a divergence or convergence appears, then you need to think about how to reduce risks by tightening stops or reducing the position volume.
Today I will tell you about one interesting trading strategy. It is very simple and anyone can master it. However, at the same time, this strategy (if applied correctly in combination with competent money management) can become a real gold mine for you.
First, a little about what divergence is.
As applied to financial markets, the word divergence means the divergence between the price and the indicator (usually, oscillator-type indicators are used for this purpose).
Below we will look at the main examples of divergence, which are signals to buy and sell. And now it should be said that divergence is a fairly strong signal, but, unfortunately, it appears infrequently. But if a trader learns to correctly recognize it and adds a bit of patience to wait for it, then he has every chance to make good money on it.
And yet, divergence has several types. In this simple divergence trading strategy, only one of them is considered and used - the classic divergence (in our opinion, this is its strongest type).
How to recognize a divergence on a price chart
How to track down and correctly identify this beast called divergence? I assure you, there is nothing difficult in identifying a classic divergence on a chart. Take a look at the picture below.
The classic bearish divergence tells the trader that the price is “tired” of moving up and will soon reverse with a high degree of probability. The picture shows that in this case the new high of the price is higher than the previous one, and the new high of the indicator is lower than the previous one.
A similar situation with the classic bullish divergence. Only she tells the trader about the imminent price reversal up. The picture shows that in this case the new low of the price is lower than the previous one, and the new low of the indicator is higher than the previous one.
What tools do you need
To trade divergences, you will need a price chart with a chart of one of the technical indicators. To search for divergences, oscillators such as , , stochastic are usually used.
The essence of any oscillator type indicator (oscillator) is that it gives its own interpretation of the price movement, fluctuating in a strictly limited range (usually from -1 to 1 or from 0 to 100%). This is clearly seen in the figure above.
Through the use of oscillators, a trader can clearly see the overbought and oversold moments of the traded financial instrument.
At those moments of time when the oscillator chart is near the upper limit of its range, overbought takes place. That is, in other words, the market is saturated and the demand has faded.
And when the oscillator chart approaches its lower boundary, the market is oversold. This means that the sellers' resources have been depleted and, accordingly, indicates an increase in demand for the traded financial instrument.
The main disadvantage, however, is the fact that oscillators (however, like the vast majority of other indicators of technical analysis) give their signals with a slight delay.
In other words, oscillators only state the changes that have taken place in the market situation, but do not anticipate them.
A wonderful exception to this rule are those signals that oscillators give in the form of divergence. The fact is that divergence, by its very nature, appears even before a real price reversal has occurred. This is what, in the first place, determines the great value of such signals for a trader.
Now just open one of the above indicators below the price chart and get to work.
Trading strategy using classic divergence
We have dealt with the definition of classical divergence, now we can talk about a simple trading strategy using it.
The following figure shows an example of trading a classic bullish divergence. It can be seen from the figure that one of the lows of the price on the downtrend was not confirmed by the corresponding low of the price on the MACD indicator. This is a clear sign that the bearish trend has weakened and a trend reversal is being prepared. The figure shows one of the options for trading, although there was an even more reliable option to wait until the price reaches the level of the previous top (in the figure it is indicated by the number 1) and only there to make a deal.
So, in this case, you can buy either at the intersection of the price of the downtrend line, or at the level of the previous top. A stop loss order is placed at the last low of the price. The order is set depending on the situation, but it is desirable that its size exceeds the stop loss at least 2 times. In this simple trading strategy, you can generally do without placing a take profit order using such a trading terminal tool as .
Similarly, trading is carried out on a bearish divergence. In the figure below, you can see two successively ascending highs in the price, which correspond to two highs on the oscillator chart. At the same time, it is clearly seen that the oscillator draws these highs one below the other. This quite definitely indicates that the upward price trend has exhausted all its strength and its completion is coming.
A position can be opened at the level of the previous price low, the level stop loss is set at the level of the last price maximum, and take profit– at a level exceeding the stop loss value at least twice.
OK it's all over Now! As stated in the title of the article, this is a simple trading strategy, but, despite its simplicity, it is very effective. Using it in your trading, coupled with reasonable rules (money management), it is quite possible to reach a stable profit.
Good luck in trading and stable profit for you!
Divergence is one of our favorite trading concepts because it provides very reliable and high quality signals that can be used in combination with other trading tools and concepts.
RSI compares the average gain and the average decline over a given period. For example, if you have RSI set to 14, it will compare bullish and bearish candles among the last 14 candles.
When the RSI value is low, it means that out of the last 14 candles, there were more bearish candles and they were stronger than bullish ones.
If the RSI value is high, this means that among the last 14 candles, more and stronger were bullish.
#2 When RSI Divergence Forms
Knowing when an indicator is high or low is important when interpreting divergences.
We usually encourage traders to look beyond the indicator lines to see what is really going on.
During trends, you can use the RSI to compare individual trend waves and thus determine the strength of the trend.
The screenshot below shows all three scenarios.
- Typically, the RSI makes new, higher highs during healthy and strong bullish trends. This means that there were more bullish candles in the last trending wave, and they were larger compared to the previous wave.
- If the RSI makes these highs during an uptrend, it means that the momentum of the trend has not changed. When the RSI makes an equal top, it does not qualify as a divergence, and simply means that the strength of the uptrend is still growing steadily. Rising highs in the RSI do not indicate a reversal or weakness. They just show that the trend will develop further without abrupt changes.
- When you see price making a higher top during a bullish trend, but a lower top is forming on the RSI indicator, it means that the last bullish candles were not as strong as the previous price action and the trend is losing momentum. That's what we call divergence or divergence and in the screenshot below, the divergence signaled the end of an uptrend about the possible start of a downtrend.
#3 Conventional technical analysis is wrong
Classic technical analysis says that a trend exists when price makes higher tops.
But, as is often the case, the generally accepted view is not entirely correct and oversimplifies things.
A trader who only relies on highs and lows to analyze prices often misses important clues and does not fully understand market dynamics.
Even if the trend at first glance looks like “ healthy” (the chart shows higher highs and higher lows), if you look deeper, it may turn out that he is losing momentum in this.
Thus, a divergence on the momentum indicator suggests that the momentum in the trend is changing and that the potential end of the trend may be close, although this is not yet visible on the chart.
How to trade divergence - optimal entry points
We trade only for turns, and transactions that are formed at the beginning of a new trend after a divergence are our bread and butter.
Divergence does not always lead to a strong reversal, and often the price after it simply enters into a consolidation with a sideways movement. Keep in mind that a divergence only signals a loss of momentum, not necessarily a complete trend reversal.
To avoid deals that go nowhere, we highly recommend that you add other confirmation criteria and tools to your arsenal.
Divergence by itself is not a very strong signal, and many traders get poor results by trying to trade only it.
As with any strategy, you need to find additional confluence factors for this strategy to be strong.
Below we see how the price made two divergences but never started to fall. Thus, divergence simply highlights short-term consolidation.
Location in trading is a universal concept, and regardless of your trading system, adding a location filter will always improve the quality of signals and trades.
Instead of entering trades based only on a divergence signal, you should wait until the price moves to the previous support or resistance zone, and only then look for divergences and trend changes to select an entry point.
The screenshot below is a perfect example. On the left, you see an uptrend with two divergences.
However, the first case turned out to be completely unsuccessful, while the second brought a big win. What is the difference?
When looking at the higher time frame in the image on the right, we see that the first divergence has occurred.” in a vacuum“, and the second formed at a very important resistance level (yellow line and arrow).
As a trader, you first identify areas of support and resistance and then wait for the price to come to you. This approach will have a very significant impact on your performance.
Divergence is a very powerful trading concept and a trader who understands how to trade it in the right market context with the right signals will be able to develop a reliable trading methodology and an effective way to study price action.
In this article, we will show you how you can use the divergence between price and volume to trade futures, forex, and stocks.
When a beginner trader For the first time he observes the behavior of volumes on his charts, he thinks that there must be something important in these sticks, he just cannot understand it. To figure it out, he reads trading literature, attends seminars, attends online webinars, and learns all the new techniques: low volume bars, high volume bars, ultra-high volume bars, signs of weakness and signs of strength. But despite all the knowledge, he can't seem to grasp the general idea.
Instead of trading, he seems to be afraid to take the first step, because he does not know if there are hidden sellers or buyers behind a particular bar.
Understanding Divergence
For traders wishing to better understand volume divergence, let's start by explaining that the standard volume indicator is non-directional and the volume bar starts at zero. For example, when the price forms a high above the previous one, the volume bars should also draw a higher high. Likewise, when the price forms a low below the previous one, the volume bars should also increase. Also, in an uptrend, when price makes a low, volume should decrease. In a downtrend, when price makes a high, volume should decrease.
There are many types of divergence. Divergence in its simplest form can be seen when the price makes a new high and the volume bar corresponding to that price does not make a new high. also observed when the price makes a new low and the volume bar corresponding to this new low is not higher than the previous volume bar. It is extremely important to remember that the volume bar indicator is non-directional.
Having a better understanding of volume divergence and how it works, it is necessary to focus on the analysis of volume bars. The difficulty was how to evaluate which of the volume bars are important for determining the divergence. Instead of looking at each individual bar of volume, you need to understand that those bars are important, where the price makes a High or Low.
Instead of looking at each volume bar and its relationship to price, you should only look at the ones that matched the High or Low. For this, "own" volume bars were developed, which were colored depending on whether the price formed High, Low or High and Low at the same time (the so-called outside bar).
Picture 1
Figure 1 illustrates the difference between standard volume bars and volume bars that match High and Low. When the price bar has formed a High, the volume bar is highlighted in blue. When the price bar formed a Low, this volumetric bar was painted red. If the price made High and Low on the same bar, then you need to look at the close of the price bar to determine the value of the volume bar. If the price bar is neither High nor Low, then it does not carry useful information, and therefore, there is no need to show it. Such volume bars remained uncolored.
"Bar-by-bar" analysis of the trading situation
Figure 2
The 3-minute EUR/USD chart in Figure 2 shows colored volume bars. Since we know that we need to compare only the volume bars that match the High price and the volume bars that match the Low price, the analysis is greatly simplified. Whenever price makes a High (blue volume bar), compare the current blue volume bar with the volume bar of the previous high.
A divergence occurs when a new high forms on less volume. Likewise, whenever price makes a low (red volume bar), one should compare the current red volume bar with the volume bar of the previous low. If the bar is gray, then you need to look at the closing of the price bar. When closing above the opening price, the bar is up. On a close below the opening price, the bar is down.
Starting from point A, when the price started, the blue volume bars increased. Then, when a new high formed below the previous one, the blue volume bars decreased, showing divergence. At point B, the price made a high and then returned, testing this high.
First of all, you need to determine the highest volume bar associated with the High. In this case, it is a gray bar where the opening price was higher. Then you need to compare this volume bar with the volume bar of the highest high. In this case, it is less. This indicates a divergence. In this case, based on the divergence, we can expect the price to go lower.
At point C, the price made a Low. At point D, when this low was first tested, the volume bar is larger. However, even though the price and volume on the first low retest behaved as expected, on the next two bars the price came back to test the low, each time on decreasing volume. This signals a possible price bottom.
Volume behavior
Figure 3
In addition to the bar-by-bar analysis, it is also possible to analyze the behavior of volumes during the development of a trend. In this case, since the price forms lower lows and lower highs, the trend is down. As shown in Figure 3, the selling peak occurred at point A. Each subsequent Low was on less volume (divergence), indicating a weakening of the downtrend (point B).
Figure 4
Incorporating this analysis into a trading plan is not difficult. For example, if the price is in a downtrend, as shown in Figure 4, look for price bars that form a High. Then, by looking back where price started pulling back to that high, identify the highest volume bar that occurred during the price formation high. This will be the volume bar against which the bar at the very top of the small pullback will be compared. Then determine if there is a divergence on the highs.
Likewise, when entering an uptrend, look at the volume of each Low and follow the same procedure in reverse to identify a reference down bar. Then compare the volume bar on the last low with this benchmark bar to determine if there is divergence on the lows. An illustration is shown in Figure 5.
Figure 5
Will this method work in different markets and time frames? The answer is simple: the method will work wherever there are price and volume bars. This can be demonstrated by looking at several different markets and time frames.
Applying volume and divergence to
Figure 6
First, as an example, let's look at a pair of currency exchange-traded funds. Figure 6 shows the weekly chart of CurrencyShares Australian $ (FXA). Each vertical line marks the moment when the price formed a High or a Low. Although there is price congestion, it is easy to determine a long or short entry point simply based on volume patterns on the High and Low.
Figure 7
In addition to CurrencyShares funds, there are also ProShare exchange-traded funds that aim to double daily performance in specific currencies. The first two vertical lines on the ProShares Ultra Euro 2x Long (ULE) weekly chart in Figure 7 indicate volume divergence and a potential uptrend entry. The last vertical line shows a divergence at the top of the price, signaling a take-back opportunity.
Figure 8
Having taken profit in ULE, let's turn our attention to, which works in the opposite direction to ULE - this is ProShares UltraShort Euro 2x Short (EUO). The weekly EUO chart in Figure 8 shows an accumulation zone (yellow rectangle) followed by five vertical lines, corresponding to volume divergence on the Low and possible entry points.
Applying volume and divergence to stocks
Figure 9
For the next example, consider the weekly chart of Apple, Inc. (AAPL) demonstrating an uptrend (Figure 9). A potential entry point can be found by looking at the Low and determining if there is a long volume divergence at that point. The first blue dotted vertical line shows where the price made a Low on the volume divergence (red volume bars gradually decrease as the price declines), providing an entry point. The price continues to form new highs and eventually generates a short volume divergence at the top (the second blue dotted vertical line), which indicates the need to take profit.
Then, when the price starts to pull back, new lows are formed. By measuring the selling volumes coinciding with the Low, it is easy to see that on the last blue dotted vertical line, the price made a new Low against the backdrop of a long divergence in volumes, giving another potential upside entry.
Figure 10
On the daily Pharmacyclics (PCYC) chart shown in Figure 10, an uptrend entry resulted from a single low volume divergence.
What about volume and divergence in commodity markets?
The analysis of volume divergence in commodity markets works just as well as for exchange-traded funds and shares . The same idea is illustrated by the September 2012 daily wheat contract chart in Figure 11, the August 2012 5-minute soybean contract chart in Figure 12, and the August 2012 3-minute gold contract chart in Figure 13. The only difference is in symbols and time frames. .
Figure 11
Figure 12
Figure 13
And finally, will it work for scalpers on the mini S&P 500? Yes. The 3-minute chart of the September mini S&P 500 contracts in Figure 14 shows how effective this method is in the scalping process at the market open on July 6, 2012. Each vertical line represents an entry into a downtrend based on volume divergence. Each of the inputs results in a three point move.
Figure 14
Is this the grail of trade?
This article shows that this divergence method is powerful, yet simple, and gives an advantage to any experienced trader. Can it be considered the stock market grail? Of course not. But it will often help explain why the support didn't work or why the trend reversed immediately after the start of the acceleration. This method works much more powerfully when used in conjunction with price reversal patterns, support and resistance levels, different time frames, gap analysis, and also in liquid markets with sufficient volatility.
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Allowing you to get a better idea of the current market situation. As they say, it is better to be fully equipped, and the ability to identify divergence on the chart will allow you to make better trading forecasts later. Moreover, binary options are very flexible in terms of choosing trading tactics based on technical analysis.
What is divergence
In simple words, divergence is a divergence. As a rule, a discrepancy between the price and the indications is implied. Divergence is one of the first signs of a weakening trend, allowing you to detect a potential market reversal in time and take appropriate measures.
Divergence can be bullish or bearish. In both cases, we need to determine at least two coinciding extremes between and the indicator readings.
A bullish divergence is preceded by a downtrend. In a bullish divergence, two consecutive lower lows on the price chart correspond to two consecutive higher lows on the indicator chart. This formation indicates a potential trend reversal.
By analogy, a bearish divergence is preceded by an uptrend. Next, we identify two higher highs on the price chart corresponding to two lower highs on the indicator chart.
The number of coinciding extrema characterizes the strength of the signal. A pattern of three or more extremes in a row is already an important signal for a reversal. Since binary options are very sensitive to choice, try not to underestimate this parameter for the sake of faster profit - the effect can be just the opposite.
In general, this is a fairly flexible tool that can be used both to determine reversals and to continue an existing trend. Therefore, the use of divergence in the binary options market is not limited to only one type of signals, but allows you to create many diverse ones.
What indicators to use
We have already found out that the easiest way to identify a divergence is by the indicator readings. Which indicator to use for this task is already a matter of taste, almost any oscillator or trend indicator will do. For example, traders often choose both OsMA for higher timeframes and RSI for lower timeframes. If you like short expiration times, you should look towards oscillators with short periods.
The principle is generally the same for any technical indicator. For example, in this case, two lows on the MACD histogram are in divergence from the movement of the instrument's price. That is, we are dealing with a bullish divergence.
The RSI also showed a divergence. But, it is worth considering that different indicators can display different signals. Therefore, for greater reliability, nothing prevents you from simultaneously using the readings of several indicators. By summing the score, you can also determine the overall strength of the signal.
Examples
Having understood the principle of determining divergence, you will no longer be able to forget it, and you will be able to determine divergences “by eye”, without additional markup. At first, to make your task easier, feel free to make a detailed markup, marking all the extremes and their direction with the help of trend lines. In the examples below, we will consider just such a way to search for divergence, using a stochastic oscillator.
In order to determine the presence of divergence, we first need to identify the extreme points of the indicator. In history, this is easy to do, in real time it is somewhat more difficult. The main rule is to look at the indicator readings only on closed candles. Only by a closed candle can we speak with confidence about the presence or absence of an extremum.
So, only after waiting for the candle to close and having determined on the chart the divergence of the two lows of the indicator with the lows on the chart, we can consider the possibility of entering the market. At the same time, we always enter in the direction of the indicator, not the price, this is important! The expiration time must be chosen not less than the range of the figure. Since we are trading against the trend, the price simply may not have enough time to reverse, and this should be taken into account. In fact, the expiry time can even be increased if the market is particularly sluggish.
When opening a trade for a fall, we look at the highs of the readings. In this case, the second high of the stochastic is lower than the first, while the price continues to rise. The indicator tells us about the exhaustion of the current trend, which means it's time to look for an opportunity to buy a Put option. The expiration time, again, we choose equal to the figure.
Conclusion
Do not forget that the very fact of the presence of divergence is often not an accurate signal for a price reversal. However, divergence is an important indicator that signals a high probability of a trend reversal. At a minimum, this should be taken into account and not entered against the signal. It is wiser to use divergence in conjunction with other signals. Definitely, this is a good basis for creating your own vehicle.
Sincerely, Alexey Vergunov
