An Example Of Hidden Divergence!

I had come across a very good example of Hidden Bearish Divergence or Reverse Negative Divergence as Martin J Pring likes to call em. Thought I will share the chart with friends who visit here often. A brief about the divergences is also given below for the uninitiated. I hope it helps.

Divergence is often said to be a leading indicator. Divergence is price action measured in relationship to various indicators ie., MACD, CCI, RSI, Stochastic and others or in relationship to another instrument or measure of the market. Treat Divergence as an indicator and not a signal. Like everything else it needs to be confirmed by THE PRICE! Yes they do occasionally fail too; The Hounds of Baskerville signal, a name given to such failures by Dr. Alexander Elder.

There are 2 basic types of Divergence.

REGULAR DIVERGENCE

1-Price is making higher highs while the indicator is not: Bearish

2-Price is making lower lows while the indicator is not: Bullish

HIDDEN/REVERSE DIVERGENCE

3-Indicator is making higher highs while price is not: Bearish

4-Indicator is making lower lows while the price is not: Bullish

"Opportunity is missed by most people because it is dressed in overalls and looks like work."

Thomas Edison