The Handbook of Technical Analysis + Test Bank_ The Practitioner\'s Comprehensive Guide to Technical Analysis ( PDFDrive )

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THE HAnDbook oF TECHnICAl AnAlysIs

figure 4.24 Accumulation Indicating Bullish Divergence on the 5‐Min GBPUSD Chart.
Source: MetaTrader 4


In Figure 4.24, we see a volume, MACD, and the relative strength indicator
(RSI) all indicating bullish divergence with the price within the accumulation.
Both the MACD and RSI are momentum‐based indicators. We see momentum
turning before price. This is particularly useful, especially at the tail end of a trend
where a clear indication that a consolidation may be forming could help the trader
anticipate an early entry. Note that for bullish divergence in volume, falling prices
must be accompanied by decreasing volume.

4.6 Sentiment Interpretation of Market Phase


Accumulations and distributions are associated with various sentiment indications,
resulting from the behavior of market participants as they respond to market news,
price action, rumors, other participants’ behaviors, brokers, and so on. As they
swing back and forth between fear, greed, and hope in the markets, various identifi-
able patterns start to emerge that are repeated fairly consistently, especially when
markets move to extremes. Sentiment indicators track these behavioral patterns via
the aggregate sentiment, emotions, and psychology of market participants. It is at
market extremes that these indicators are most accurate and reflective of the under-
lying mood of optimism or pessimism. Examples of some sentiment indicators are:

■ (^) Put‐Call Ratios
■ (^) Arm’s Index
■ (^) Odd Lot Sales
■ (^) Margin Debt
■ (^) Cot Report
■ (^) VIX

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