Using divergences correctly can help spot key market turns
Many traders and analyst use price-momentum divergence to identify trend reversals. For those of you who are not familiar with this term divergences may be defined as follows:
* Bullish divergence: When price lows are lower in a trend but momentum lows are higher
* Bearish divergence: When price highs are higher in a trend but momentum highs are lower
Basically what this is effectively saying is that momentum, that is the pace of the trend, slows then the underlying momentum indicator will not confirm the new price extremes by making new momentum extremes.
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