Divergence Analysis
This unique approach for determining direction is only employed at the point
of non‐confirmation and nowhere else. This definition of trend or direction may
also seem somewhat lacking or unusual when compared to the usual strict re-
quirement for both higher peaks and troughs in an uptrend and similarly for both
lower peaks and troughs in a downtrend. One way to resolve this disparity is to
imagine a trendline connecting the adjacent peaks or troughs. Once we do this, we
realize that we are in fact defining trend in the same way that a trendline does, by
employing just two points.
It would therefore be particularly useful at this point to subclassify direction or
trend analysis in the following manner, as it relates specifically to divergence analysis:■ (^) Multiple Peak and Trough Analysis is used to define and analyze uptrends and
downtrends across multiple peaks and troughs, where an uptrend may be de-
fined as successively higher peaks and troughs and a downtrend as successively
lower peaks and troughs. In divergence analysis, this conventional approach
to analyzing trends may be used to establish the direction of the prior, current,
and subsequent larger trend.
■ (^) Slope Analysis is used to define and analyze uptrends and downtrends (a) when
peaks and troughs are not clearly visible or accessible, and (b) when multiple
peaks and troughs are visible but are observed as a slope at a higher wave
degree. In divergence analysis, slope analysis may be used to establish the
direction of the prior, current, and subsequent larger trend. When slope analy-
sis is used, only standard divergence analysis applies. Reverse divergence is
excluded from the analysis and is not accounted for, as its use would lead to
definitional ambiguity. Slope analysis is also applied to trendlines or regression
lines.
■ (^) Adjacent Peak to Peak Analysis is used to define direction between two adja-
cent peaks, representative of the market rising and falling across a single cycle
on the lower wave degree. In divergence analysis, it may be used to establish
the direction of the current larger trend. This kind of analysis should not be
employed to determine the direction of general trends, which includes the
prior and subsequent larger trends (unless reducible to two peaks at a higher
wave degree).
■ (^) Adjacent Trough to Trough Analysis is used to define direction between two
adjacent troughs, representative of the market rising and falling across a
single cycle at the lower wave degree. In divergence analysis, it may be used
to establish the direction of the current larger trend, but it should not be em-
ployed to determine the direction of general trends, which includes the prior
and subsequent larger trends (unless reducible to two troughs at a higher
wave degree).
It is imperative to be aware that, when comparing adjacent peaks between two
data series, there are nine possible combinations that encompass motion in all pos-
sible directions of the current larger trend, six for moving in opposing directions,
and three for moving in the same general direction. The total number of combina-
tions expands to 18 when we also start to compare successive troughs in order