FOREX THEORY
Regular Divergence
A regular divergence is used as a
possible sign for a trend reversal.
If price is making lower lows (LL),
but the oscillator is making higher lows (HL), this is considered to be regular
bullish divergence.
This normally occurs at the end of
a down trend. After establishing a second bottom, if the oscillator fails to
make a new low, it is likely that the price will rise, as price and momentum
are normally expected to move in line with each other.
The image shows that portrays regular bullish divergence.
Now, if the price is making a
higher high (HH), but the oscillator is lower high (LH), then you have regular
bearish divergence.
This type of divergence can be
found in an uptrend. After price makes that second high, if the oscillator
makes a lower high, then you can probably expect price to reverse and drop.
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