Divergence Analysis
9.6.3.1 examples of inter Moving average Divergence The most popular
indicator that is founded on inter moving average divergence is the MACD. As
mentioned in an earlier section, we may use the divergence created between the
peaks and troughs in the MACD and price itself to forecast reversals and continu-
ations in the market.
We could also study the divergent behavior of various popular moving
averages to better understand the nature and character of the market under
observation. In Figure 9.103, we see multiple moving averages in action. Di-
verging averages indicate continuation while converging averages indicate a
slowing of the trend and potential reversal. This diverging and converging
behavior within the group of moving averages is of immense interest to the
practitioner as it provides a means of forecasting potential consolidations and
breakouts, by observing the average rate at which the group of averages con-
tracts and expands.9.6.3.2 examples of bollinger bandwidth Divergence We shall use the broad
definition of divergence when referring to Bollinger Bandwidth divergence. Slope
analysis is used when analyzing bandwidth divergence, and therefore this excludes
reverse divergence from the analysis. The fluctuations in the bandwidth reflect the
degree of divergence between the upper and lower bands. Under the narrow defini-
tion of divergence, these fluctuations represent the diverging and converging action
between the bands. It is important to understand that we cannot use terms like stan-
dard, bullish, or bearish with bandwidth divergence. This is because the bandwidthFigure 9.103 Forecasting Consolidations and Trends via Multiple Moving Average
Divergence and Convergence.