![]() Including divergence within that range hurts performance in nearly all categories.ĭivergence occurs when price makes a higher peak and an indicator makes a lower one (bearish divergence), or price makes a lower valley and the indicator Third, it's best to ignore divergence when the first peak or valley occurs between 30 and 70. That turns out to be true but only in a bear market. Second, I read that when the indicator makes a shallow dip or rise between the end points in divergence, it means a more powerful move. Showing bullish divergence more often than not. In other words, the performance of the index beats stocks The other combinations of bull/bear markets and bullish/bearish divergence underperform the market index.įor the winning combination, bullish divergence in a bull market, I found that it wins between 45% and 48% of the time. This article discusses test results of comparing the performance of hundreds of stocks and the RSI for bullish and bearish divergence.įirst, tests show that divergence between price and the Wilder relative strength index (RSI) beat the performance of the S&P 500 index consistently only in a bull market using bullish divergence.
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