Divergence Analysis
indicators, price action will usually be less volatile with more pronounced trends.
This ability to gauge market behavior will be of great benefit to directional traders
who want to avoid choppy action and only participate when the market is more
predisposed to trending action. See Figure 9.107.9.6.5.2 examples of inter‐Oscillator Divergence: phase Discrepancy Phase
differences are easily identified by locating peaks or troughs in the oscillators that
are not in sync or aligned with each other. Though phase difference is ideally as-
sociated with sinusoidal action and is therefore perfectly identifiable and quantifi-
able, this is unfortunately not the case in semi‐random markets where wave cycles
are at best transient and seldom symmetrical. Before looking at our next example,
let us first define phase divergence.
When examining phase divergence, the following guidelines apply:- When peaks are asynchronous, it is regarded as potentially bearish for price
- When troughs are asynchronous, it is regarded as potentially bullish for price
- When peaks are asynchronous, no oscillator peak should lag the peak in price
- When troughs are asynchronous, no oscillator trough should lag the trough in
price
Figure 9.108 displays a chart of the continuous contract in wheat, with two
oscillators—the 60‐day rolling CCI and the MACD—as the supporting data se-
ries. We notice that for the most part peaking in the CCI and MACD is fairly
synchronous. But at time line A we see the CCI peaking before MACD and price.Figure 9.107 Forecasting Regime Changes in Exxon Mobile Corp via OBV‐ADL
Divergence.
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