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Technical Analysis: Power Tools for Active Investors by Gerald Appel

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Using Divergences to Recognize the Most Reliable Signals

Negative divergences are said to take place when price levels of the investment in question reach new highs, but measures that reflect upside market momentum fail to reach new positive areas.

Positive divergences are said to take place when price levels of the investment in question fall to new lows for the cycle, but measures that reflect downside market momentum fail to decline to more negative areas.

The failure of measures of momentum to confirm new highs or new lows in price by failing to concurrently achieve new peaks or new lows, respectively, indicates a diminishing of market thrust in its current direction. Divergences suggest a more or less imminent market reversal ahead, often ...

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