thE hAnDbook of tEchnicAL AnALySiSalso see medium‐term bearish divergence indicated between point 2 and time line
B. Rising volume accompanied by declining open interest is indicative of a rally
fueled by short covering. Though not displayed on the chart, it may be interesting
to be aware of the fact that the Market Vane sentiment readings for Silver were at
extreme overbought levels prior to Silver peaking in 2011. Sentiment indicators
are most reliable at market extremes and should therefore be incorporated into
any analysis of divergence at historic or significant price levels. Finally, market
participants should only initiate short positions or exit previously profitable long
positions upon price confirmation.
9.6.5 examples of Oscillator to Oscillator Divergence
Divergence between two different oscillators is referred to as inter‐oscillator di-
vergence, whereas that between two identical oscillators is called intra‐oscillator
divergence. The two basic measures of divergence between oscillators are that of
direction and phase. Divergence stemming from directional discrepancies is most
commonly employed. It is harder to locate phase discrepancies between oscillators
that usually peak and trough in lockstep with each other. That is the reason why
when a phase discrepancy arises, it is regarded as a strong indication of a potential
reversal.
9.7.5.1 example of inter‐Oscillator Divergence (Directional Discrepan-
cy)—using Obv‐aDL indicator pair Divergence to gauge Market regime
Change One particularly useful technique for forecasting market behavior or
regime change is via the combined use of the OBV and ADL. Whenever there is
non‐confirmation between the OBV and ADL, price action will fairly frequently
be volatile and erratic. However, when there is confirmation between these two
Figure 9.106 Price to Volume and Open Interest Divergence in Silver.