It is pretty straight forward. To quote Bill: "A bullish divergence bar is a bar that has a lower low and closes in the top half of the bar. A bearish divergence bar is the just the opposite. It is a bar that has a higher high and closes in the lower half of the bar." (Trading Chaos 2nd edition; Page 110).
Its purpose is to give you a heads up that a strong trend move may be ready to turn around. On a bullish divergence bar a buy stop is placed just above the bullish divergent bar and on a bearish divergence bar a sell stop is placed just below the bottom of the bearish divergence bar. If the market reverses, you're in.
Of course, not all trends reversals have a Divergent Bar trumpeting the change. But, it occurs quite often. I have been eyeballing them, but honestly, I miss a lot of them (until after the move).
Is there someone willing to write this for the community.
All the best,
Bryan
Comment