@zachwill

Most of my projects are on GitHub. I'm currently with the Portland Trail Blazers.

Enter the Divergence

Why do complex chart patterns form? Double tops, double bottoms, head and shoulders, and inverse head and shoulders? All about divergences.

Distribution patterns happen because on the lower timeframe, you have declining bullish momentum. In the higher timeframe, it has not experienced this decline of bullish momentum, because it was heavily bullish, and so as the shorter timeframe continues to lose bullish momentum, the higher timeframe’s bullishness pushes the price higher and you get negative divergence in the shorter timeframe. The shorter timeframe maintains its decline in bullish momentum, finally causing the higher timeframe to weaken.

Bam!

Price pops up forming a double top. Price goes down hard. Oh but wait, the higher timeframe’s next adjacent higher timeframe is still a bit bullish.

Bam!

A head and shoulders formation.

And then finally all timeframes are weak. Market tanks.

Kewltech