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Profitable Day and Swing Trading: Using Price / Volume Surges and Pattern Recognition to Catch Big Moves in the Stock Market, + Website by Harry Boxer

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CHAPTER 10

Technical Divergences and Loss of Momentum

The divergence of stock prices from their ongoing angle of ascent and/or divergence from their underlying technicals can be the first sign of a loss of momentum and is a dire warning sign of potential trend change.

When analyzing the wide variety of underlying technical indicators which are provided on most charting services, I focus on just a few such as MoneyStream, Balance of Power, and Volume Buzz (Worden Brothers’ proprietary technical measurements), total and relative volume, on-balance volume, stochastics (an oscillator-like indicator measuring overbought/oversold) and relative price strength, just to name a few. It’s never a bad thing to analyze as many indicators as possible to get confirmation of a price trend (or divergences if they are occurring). However, I believe in keeping it simple, as too much information can be confusing and even overwhelming, especially for the inexperienced or novice trader trying to learn the benefits of technical analysis. Even the experienced trader can gain clarity by using just a few of the indicators I recommended earlier and eliminating some of the “noise” that too many indicators can cause.

I realize that many opinions in the technical analysis universe differ as to which indicators are most accurate or powerful in determining the validity of a trend or price movement in either direction (long or short). However, my nearly 50 years of heavy trading experience has shown me that ...

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