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thE hAnDbook of tEchnicAL AnALySiS

Bullish (or positive) divergence implies that price will either:

■ Reverse to the upside

■ Continue rising to the upside

Bearish (or negative) divergence implies that price will either:

■ Reverse to the downside

■ Continue declining to the downside

With respect to reverse divergence, price is expected to continue in the direc-
tion of its current larger trend, moving in the opposite direction to that of the sup-
porting data series. Unfortunately, there are two approaches in reverse divergence
with contrary outcomes. In either case, if the supporting data series is moving to
the upside, price is expected to move to the downside, and we say that we have
reverse bearish divergence. Conversely, if the supporting data series is moving to
the downside, price is expected to move to the upside, and we say that we have
reverse bullish divergence.
It is customary in technical analysis to assume that the supporting data series
is refl ecting the underlying strength or weakness in price. Regardless of its current
direction, price is expected to eventually converge on the supporting data series in
George Lane’s Bull and Bear setups.

9.3.2 Defi ning standard bullish and bearish Divergence

Accordingly, standard divergence may now be associated with either a bullish or
bearish bias, as follows:

■ Standard bearish divergence occurs when only price, and not the supporting

data series, is making equal or higher peaks, or when the slopes between the

two data series are diverging.

■ Standard bullish divergence occurs when only price, and not the supporting

data series, is making equal or lower troughs, or when the slopes between the

two data series are converging.

See illustrations (2), (3), (6), (13), (16), and (17) in Figures 9.43 and 9.44.
Standard bearish divergence indicates a potential reversal to the downside
of the current larger trend as observed at the point of non‐confi rmation, seen in

nOte

Bullish and bearish divergence are determined solely from the directional re-

lationship between peaks and troughs, or slope, at the observed wave degree

between the two data series, irrespective of the direction of the trend at the

next higher wave degree.