MACD: Bearish or Negative Divergence1. What is a divergence ?
a) A divergence takes place when the MACD indicator (or any other technical momentum indicator) contradicts price.
b) A divergence is often seen as a sign that the current market action is losing its momentum and weakening, meaning it could soon change direction.
c) One of the most common problems with divergences is ‘false positives’, which is when the divergence occurs but there is no reversal.
2. What happens generally post a divergence ?
The price market makes an all-time high and the MACD indicator below makes a lower high. This is another excellent reversal trade opportunity and you can see for yourself what happened with price after the event.
