Recap of Example 2

A Quick Look at our First Two Examples:

Here is a shot of the two previously explained bearish divergences. One should be able to tell how the length of the divergence, in terms of time, affects the reversal afterwards.

In the green example, which was analyzed second, the divergence lasted from the end of one week to the end of a second weak. The fall in the EUR/USD pair, after this divergence, was 300 pips and took a full week to complete. Some fundamental news probably came out that sent traders into a euro selling/dollar buying mode. Even so, there was a trading set up for a technical trader as the bearish divergence meant that there was selling pressure on the pair to start the week.

The brown divergence, that was studied first to start this comprehensive example, shows that the divergence lasted for only half the week. Its effects were felt at the start of the next week and the price of the pair moved 150 pips. Since the divergence was about half as long as the previous one the resulting drop in price is also about half the amount.

Now, looking at price and the A/D indicator after Euro bulls rallied the currency from 1.2200 past 1.2550 is there another divergence forming?

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