Divergence Analysis
It is imperative to realize that price is expected to subsequently follow through
in the direction of the supporting data series at the next higher wave degree when
applying standard divergence analysis. Therefore, if the supporting data series is
moving to the upside, price is also expected to eventually move to the upside, and
we say that we have bullish divergence. Conversely, if the supporting data series
is moving to the downside, price is expected to eventually move to the downside,
and we say that we have bearish divergence. It is assumed that the supporting
data series is reflecting the underlying strength (with increasing momentum) or
weakness (with diminishing momentum) in price. Regardless of its current direc-
tion, price is expected to eventually converge on the supporting data series. (This
is the reason why some practitioners also call this bullish convergence, adding to
the confusion. What these practitioners are actually doing is applying the narrow
definition of divergence. Under the narrow definition, bullish non‐confirmation
is referred to as bullish convergence. Additionally, bearish non‐confirmation is
referred to as bearish convergence under reverse divergence analysis.)Figure 9.28 Representations of Standard Divergence at the Current Larger Trend Us-
ing Adjacent Peak to Peak and Trough to Trough Analysis.Figure 9.29 Representations of Reverse Divergence at the Current Larger Trend Us-
ing Adjacent Peak to Peak and Trough to Trough Analysis.