thE hAnDbook of tEchnicAL AnALySiS
to determine direction of the current larger trend. See Figure 9.3. Boxes (1) to (9)
are based on adjacent peak to peak analysis and boxes (10) to (18) are based on
adjacent trough to trough analysis. Boxes (1), (5), (9), (10), (14), and (18) depict
both data series moving in the same direction, lacking directional properties called
divergence and convergence.
As mentioned earlier, when peaks and troughs are not available or visually
accessible to determine direction, we simply refer to the angle or slope between
two data points. In such cases, the existing 12 combinations that depict mo-
tion in opposing directions between the two data series collapse back to six.
But in order to identify which of the six combinations indicate bullishness or
bearishness in the main data series, we first need to understand the concept of
divergence.
9.2 General Concept of Divergence
The term divergence is a constant cause of confusion in technical analysis, espe-
cially to the uninitiated. This is further exacerbated when practitioners occasion-
ally employ the term convergence to imply divergence and vice versa. We shall
now attempt to resolve these inconsistencies in the usage of the terms divergence
and convergence by first introducing another important concept in technical anal-
ysis called confirmation.
Figure 9.3 Defining Direction of the Current Larger Trend.
