SubscribeDivergences: The Best of Both Worlds
Example of MACD and RSI Diverging with Price
Up to this point I have been discussing the scenario where either the MACD or RSI individually formed a divergence with stock price. In the graph below you will see a very powerful combination in which both the MACD and the RSI trend together, but in the opposite fashion of price on the same time frame. This means that both the MACD and RSI are forming a divergence as compared to the price and you should be prepared to act quickly.
This example could occur on any time frame, but this particular one happens to be plotted on a 10-day hourly chart. Here, you could have initiated a position near $478 and in one trading day see the price increase to $494 and the trading day isn’t even over yet! As we speak, there is an ascending triangle forming on the 10-day hourly charts indicating that the stock is experiencing a brief “consolidation†pause and will resume its previous trend. Look for shares to climb between $500-$505 per share given a successful breakout in the short-term.
Source: Bigcharts
Good Investing…
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Comment by Bubs on 24 January 2007:
Stephen,
Quick question for you. Where do you draw the trendlines on the MACD part? Here is one that I was messing around with:
http://bvitha.wordpress.com/files/2007/01/crdn60mindiv.jpg
Can you tell me if it is correct? Want to make sure I am doing this right before I start looking for them. Thanks again for all your help
Comment by Stephen Oakes on 24 January 2007:
Bubs,
I hope you do not mind, but I will take the picture you gave me and correct it so that you can see how to draw the line.
The RSI is correct, but the MACD needs to be under the bottoms.
Comment by Bubs on 24 January 2007:
Dont mind at all I was having a hard time drawing the MACD on most of the charts. Thanks