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

Divergence Analysis

In Figure 9.14, lower peaks in price are accompanied by higher peaks in the

supporting data series giving rise to non‐confirmation at the current larger trend

based on adjacent trough to trough analysis. Price continues to make successive

lower peaks and troughs. We say that there is a continuation of the current larger

trend. As will be explained later, reverse divergence implies a potential continua-

tion in price, which we now understand to mean a continuation at the next higher

wave degree, or of the current larger trend.

We shall now observe the progression of the three main trends around a di-

vergent setup. In Figure 9.15, the prior larger downtrend was followed by non‐

confirmation. Using adjacent trough to trough analysis, we see the current larger

trend depicting a falling market, which subsequently reversed to the upside. Hence

the subsequent larger trend is a reversal of both the current and prior larger trends.

Figure 9.13 Subsequent Reversal of the Current Larger Trend (EURUSD).

Source: MetaTrader 4

Figure 9.14 Continuation of the Current Larger Trend.