Divergence, in a large sense, just means something like, "Huh? What's that?" -- that is, some relation should have existed, or something should have agreed, but didn't.
For example, if the ES (S&P futures) is moving up but NQ (Nasdaq futures) is moving down, you have two things that are somewhat similar (both stock index futures) that are out of step. This kind of divergence can be very informative. It means, "Be alert, something unusual is happening." In this case, two groups of stocks that have different characteristics are not acting the same. Maybe the market is looking to avoid risk, or maybe something else.... The divergence doesn't tell you what will happen, just that something is out of whack now. You have to see if you can figure it out.
As to the DOM, well, if selling pressure can't move the tape, that means something, no matter what it is called.
So no disagreement here; I was just addressing the MACD/RSI question, sort of in a more narrow way.
Edit: I just noticed that right now, the NQ is moving up and the ES has gone sideways into a range (well, I knew the ES was ranging, but hadn't looked at NQ.) That may mean something now: higher cap stocks underperforming the tech-heavy, usually riskier index. So there's a real-time example unfolding. But what it means is always the question. Just that something is out of whack, and there's a heads up....
Last edited by bobwest; August 9th, 2015 at 03:05 PM.
The following 2 users say Thank You to bobwest for this post:
Without getting into discussions about semantics or about redefining terms, you are more likely referring to The Dog That Didn't Bark:
A Sherlock Holmes short story, "Silver Blaze", has to do with the disappearance of a race horse and the murder of its trainer. Holmes suspects that Scotland Yard Inspector Gregory has the wrong man because of what he terms a "curious incident":
Gregory: "Is there any other point to which you would wish to draw my attention?"
Holmes: "To the curious incident of the dog in the night-time."
Gregory: "The dog did nothing in the night-time."
Holmes: "That was the curious incident."
The fact that the dog did nothing, didn't bark, suggests to Holmes that the dog knew the perpetrator, that he was not a stranger but rather a friend of the family or even a member of the family itself.
The dog did not do what one would expect it to do under normal circumstances. When price doesn't do what one expects it to do under normal circumstances, one should at least begin to suspect that "something is afoot". Yes, it's silly. But it provides the trader with a mental hook on which to hang his thoughts and examine them.
Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).
When price first drops out of that narrow range (1), one expects it to continue its move downward. But it doesn't. When it drops out of the range a second time (2), it still doesn't, even though it makes a lower low. If price does not do what's expected, it will more likely do the opposite. If price won't fall, either buyers are supporting it or sellers aren't very motivated to sell. Either way, pressing for a short entry will not likely be productive. Price isn't doing what's expected. The dog isn't barking.
All goes well until price tries to make a higher high at (3). The trend is up, there is a series of higher highs and higher lows, but then price doesn't do what it's expected to do, i.e., make a higher high. The dog doesn't bark. So price reverses and begins a downtrend, lower highs, lower lows until price reaches (4). Price doesn't do the expected thing. It doesn't make a lower low. The dog doesn't bark. Price reverses and begins a new uptrend.
The following 2 users say Thank You to DbPhoenix for this post: