Price and Indicator Divergence as a Trading Signal
Summary
This brief describes divergence as a mismatch between the direction of price movement and the direction indicated by a technical indicator. It notes that divergence often appears when an indicator reaches an overbought or oversold zone, giving the levels 20 and 80 as examples. The text identifies the subject as an indicator concept rather than a complete trading system.
The document provides no entry or exit rules, asset class, timeframe, or performance evidence, so it does not establish how divergence should be traded or whether the signal is predictive. It also offers no detail on which indicators are supported or how the cited zones are calculated. Readers can take away the basic pattern definition, but would need further testing and rules before using it in a strategy.
Key ideas
- Divergence occurs when price direction differs from indicator direction.
- The document associates the pattern with overbought or oversold indicator readings.
- It gives example threshold levels but does not specify a complete trading method.
- No performance evidence or market and timeframe details are provided.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.