11. Big Loss Risk if you Don't Understand Hidden Divergences

Most technical Analysts are conditioned to think that positive divergences mean buy and negative divergences men sell. This is NOT always the case, and can result in big losses. In this video I reference another YouTuber PSAadmin of Perfect Stock Alert, and point out a common mistake, that I made as well, which led to an incorrect market call.

Divergence Matrix
http://apple-investor.com/alerts/2010/June/18/hidden-divergence.key.pdf

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[goldwing25]

After researching this even more:

The first example of hidden divergence you show is text book, but the second one you show is not, price low in the spx on Feb 8th was 1056.74, price low on June 7th was 1050.47. So June 7th is a lower low, that should not be if it was a hidden divergence. It's looking more like a classic H&S pattern IMO, we will see.

[TheAppleInvestor]

@goldwing25 I was actually looking at Feb 8 to May 21 for the hidden divergence, and I wasn't really looking at the long tails, more like the close. I definitely didn't clarify that in the video. But I was really more interested in the relative divergence. In either case you are technically correct, however from a relative point of view I think the divergence still holds, and it's clear that the following continuation then uptrend proves that out. Not the best example for sure.

[goldwing25]

I want to add that both you and PSAadmin make great points and I'm still bearish when looking at the similarities between july 09 to present as compared to july 06 to December 07, lots of headwinds moving forward from here.

[TheAppleInvestor]

@goldwing25 I think there's a possibility for a flash crash, like we had on May 6, but the big one won't happen until later this year in my opinion

[goldwing25]

To you credit I listened to you and went searching for an example, I found a significant example:

DJIA:

Oct. 13th 2005, 10,216, RSI=32.79, MACD= -79.24

to

June 13th 2006, 10,706, RSI=27.71, MACD= -127.27

Then the hidden divergence shows up from June 13th, 2006 to June 18th, 2006, a positive div. the markets track up for a long term.

[TheAppleInvestor]

@goldwing25 Yes, I believe the markets will track up through the summer.

[fabrenn]

Thanks for taking the time to explain the subtle difference in divergence. It has certainly helped me understand chart structure far more clearly.

[750nutcase]

what settings are you using with macd?? thanks

[DayTradersWin]

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[DayTradersWin]

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[goldwing25]

@TheAppleInvestor Yes, I understand you there and see that hidden divergence to May 21, my only problem is price quickly found a lower low, within a week or so it's a tough call, As this plays out we all stand to learn more about market behavior, like you have said the learning never ends. A good video you have here, gets one thinking.