Divergence Analysis
9.3.7.4 inter Oscillator Double Divergence Besides the MACD divergence
seen in Figure 9.62 , we also observe its histogram displaying similar divergences,
which in itself is another form of double divergence. Many practitioners look for
this combination of double MACD divergence for a potentially more reliable signal.9.3.8 Multiple Divergence
Any chart comprising two or more divergent setups is normally referred to as a
multiple divergent setup. Multiple divergence is also sometimes loosely referred to
as complex divergence, but this may not always be appropriate. Having numer-
ous overlapping or alternating divergent setups may indeed be seen as complex,
however, complex divergences, in their simplest forms, may be represented by a
simple divergence between two oscillators in the supporting data series that are at
different phases to each other.9.3.9 Complex Divergence
Complex divergence may be represented by any of the following:■ Triple or multiple divergences
■ Phase‐based divergences between oscillators
■ Extensive overlapping or alternating divergent setupsWe shall see numerous examples of these complex divergences throughout the
rest of this chapter and handbook.9.3.10 Detrending and Double Detrending: inter
Moving average Divergence
Detrending allows the trader and analyst to isolate and quantify the difference be-
tween two data series by removing the trend component from the data. The most
well known example of detrending is the MACD, which is constructed by detrending
two exponential moving averages (EMA) of 12 and 26 periods. The MACD therefore
isolates the spread or difference in price at every point along the two moving averages.
Whenever the two moving averages converge on each other, the value of the MACD
declines, approaching a minimum value of zero at the point where the two moving
averages meet. Conversely, any divergence between the two moving averages increases
its value, positively for upside divergences and negatively for downside divergences
between the two moving averages. The greater the divergence between the moving
averages, the farther away the MACD will move from its central or zero equilibrium
value. Divergence between the two moving averages represents confi rmation of the
upside or downside trend and therefore implies a continuation, whereas convergence
suggests a weakening of the current trend and therefore implies a reversal.nOte
The convergence of two moving averages indicates a slowing of the trend
whereas divergence indicates a strengthening of the trend.