Self Directed Investor Inc
SDI: "Empowering investors with ideas and education"
Symbol Lookup »  
Topics:ChinaETFsEarningsEconomyEnergyForexGoldIncomeLessonsIdeasTrading

  • Other news: News from PR Newswire
| More

Lesson in Divergences Plus Trendline Breaks in Dollar March 31

Thu, Mar 31, 6:51 PM ET, by Corey Rosenbloom

It seems all traders seek to answer the same question: “When is this market likely to reverse?”

Newer traders tend to love “reversal” style strategies, wanting to enter as close as possible to a trend reversal in order to have the tightest stop and biggest target possible.

While no strategy can call a top or bottom all the time, one of the best ones I’ve found is to look for multi-swing divergences followed by a trendline break as a high probability, low-risk trigger for entry into a potential major shift in a market trend.

Let’s take a quick look at this concept as played out in the US Dollar Index (really it could be anything) through March:

Click for full-size image.

As you probably know, I am a huge fan of trading divergences and have posted dozens if not hundreds of times on the topic of trading divergences in multiple markets.

Here is a quick sampling of some of the recent educational posts:

“A Lesson in Trading Dual Divergences on Two Timeframes in Dollar UUP”

“A Lesson in Playing Intraday SPY Reversals with Dual Divergences”

“When Divergences Really Matter: SP500 at 1,300″

“Lessons from Crude Oil Divergences and Head and Shoulders”

“Divergences and Breakout Lessons in Goldman Sachs in 2010″

“A Quick Lesson in Intraday Divergences in SPY December 16 2010″

“Lessons from Crude Oil in Dual Divergences, Kick-offs, and Breakouts”

Take a moment to look over some of those for background reading.

The main idea with the Divergence plus Trendline Break situation is that the Divergence (in momentum using the 3/10 Oscillator) is your first warning signal of potential trend reversal – and the more “swings” build up a divergence (when price continues to push higher while the oscillator continues to slip lower on each swing) – then the greater the odds of a reversal.

You can’t necessarily trade BECAUSE there are divergences – you need a TRIGGER.

The best trigger/signal comes from price breaking through an opposing trendline that connects the rising (or falling) trend.

So if you observe a multiple swing divergence then see price breakthrough a corresponding trendline, THEN that is a much safer signal that odds are strongly likely to lead to a reversal in the timeframe trend.

Of course, nothing guarantees a reversal so you’ll need to place your stop beyond the absolute swing high or low in the event the market trend pushes on beyond what you think it can – this higher risk is inherent (cannot be removed) from aggressive-style reversal trading strategies.

In the chart above, we have three such trend reversals in structure (series of price highs and lows) in the Dollar Index:

A) March 11th gave us a multi-swing negative momentum divergence that was followed with a signal via a trendline break at the $76.80 level.

In this case, price fell sharply from the high and broke an otherwise ‘lazy’ trendline that couldn’t keep up with the recent swing high – leaving this trade to be a later entry than perhaps was comfortable. It did produce a trend reversal as expected though.

B) This was a big one, and given the bearishness on the US Dollar index, it may have been a difficult trade to take but it was effective.

The Trend Structure continued pressing lower (lower lows and lower highs) though the momentum oscillator continued building a positive divergence situation which eventually gave-way on a breakthrough of the falling (tighter) trendline on March 22nd at the $74.50 area – allowing for a tighter stop under $75.30.

Price continued its pulse higher and then recently slammed into a triple top formation – with its own divergences – at the $76.40 level… leading to the recent trendline breakdown and opportunity.

C) The triple-top served as a clean resistance area which had its own negative momentum divergence and trendline breakdown on March 30th which sent the index moving lower into the present session.

Without going into exhaustive detail, I wanted to highlight this lesson/concept – discussed in far more detail in Chapter 2 on “Momentum’s Leading Edge” in the new Complete Trading Course book.

The Dollar Index served well in describing this concept of Divergence plus Trendline Break equals likely structural change – and the inherent trading opportunities that come from changes or reversals in market structure.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter: http://twitter.com/afraidtotrade

Corey's new book The Complete Trading Course (Wiley Finance) is now available!

blog.afraidtotrade.com


SDI Glossary: "Breakout" Definition
SDI Glossary: "price" Definition
SDI Glossary: "Finance" Definition
SDI Glossary: "TA" Definition
SDI Glossary: "Trend" Definition
This Article's Word Cloud:   Corey   Divergence   Divergences   Dollar   Dual   Index   Lesson   Lessons   March   Trading   afraidtotrade   break   concept   continued   divergence   divergences   entry   from   have   high   higher   into   likely   look   lower   market   momentum   odds   price   quick   recent   reversal   risk   served   signal   situation   stop   swing   that   then   this   though   trade   traders   trading   trend   trendline   trigger   which   with

| More

May 27 Rally Up Market Update and Big Stock Scan
Wed, May 27, 2:11 PM ET, by Corey Rosenbloom

Resiliently, buyers thrust the market higher off support to trigger ANOTHER Trend Day so far. ...

Three Suddenly Strong Stocks to Study
Wed, May 27, 12:51 PM ET, by Corey Rosenbloom

During recent stock scans, I came across three “Suddenly Strong” stocks I wanted to share ...

A Quick Lesson in Trading Reversals from Support with Divergences
Wed, May 27, 11:11 AM ET, by Corey Rosenbloom

One of my all-time favorite trade set-ups is the play into higher timeframe support with ...

Breakdown Stock Scan and Trend Day Market Update May 26
Tue, May 26, 2:21 PM ET, by Corey Rosenbloom

We’re finally seeing some action in the market after a flat, range-bound, divergent, false breakout ...

Four Market Money Flow Update on Today's Big Move
Tue, May 26, 11:21 AM ET, by Corey Rosenbloom

The US Stock Market sell-off isn’t the only big money flow event happening today. Gold ...

Overdue Retracement Triggers in US Stock Market
Tue, May 26, 10:41 AM ET, by Corey Rosenbloom

We’ve been waiting for this moment as the market crept to new highs on massive ...

Wednesday Webinar: Five Step Checklist for Finding the Next Hedge Fund Darling Stocks
Mon, May 25, 3:21 PM ET, by Corey Rosenbloom

This should be an interesting, can’t miss webinar! John Carter is providing for us a ...

Textbook Arc Rounded Reversal for High Flying Airlines
Mon, May 25, 3:11 PM ET, by Corey Rosenbloom

A beautiful chart pattern played out on two airline stocks – Southwest and United Airlines. ...

Key Make or Break Level Here for the US Dollar this Week
Mon, May 25, 2:51 PM ET, by Corey Rosenbloom

Will it or won’t it? The US Dollar Index faces a breakout – or reversal ...

Join Me Thursday for a Special "Ten Tips for Trading Trend Days" Live Webinar!
Fri, May 22, 9:51 PM ET, by Corey Rosenbloom

I’m very excited about a special upcoming opportunity with Trader Kingdom where I’ll collect my ...

How to Use Breadth to Make Sense of a Hideous Flat Market Range
Fri, May 22, 2:41 PM ET, by Corey Rosenbloom

How in the world do you make any actionable sense at all of this pattern ...

May 22 Stock Scan and Range Day Holiday Update
Fri, May 22, 2:21 PM ET, by Corey Rosenbloom

Buyers continue to enact their will on the market, preventing what would otherwise be a ...

Perfect ABCD Pullback Example in Crude Oil
Thu, May 21, 2:21 PM ET, by Corey Rosenbloom

When we last left Crude Oil in our updates, it was trading down into a ...

May 20 Melt Up Market Update and Big Bullish Stock Scan
Wed, May 20, 2:41 PM ET, by Corey Rosenbloom

The market was at risk for a “Melt Up” or “Collapse Higher” today and heated ...

Still Planning a Breakout or Reversal in the SP500 Wedge
Wed, May 20, 11:41 AM ET, by Corey Rosenbloom

Is today the day price will break violently higher in a short-squeeze… or else fall ...

Strongest and Weakest Dow Jones Stocks on May 19 Volatile Session
Tue, May 19, 4:21 PM ET, by Corey Rosenbloom

Let’s dig a little deeper to find which stocks are participating with today’s spastic trend ...

New John Carter Video on How to Find Stocks Before Hedge Funds Get In
Tue, May 19, 10:11 AM ET, by Corey Rosenbloom

I really found John Carter’s new video training interesting and learned a few facts I ...

Melt Up Market Update and Diverse Stock Scan May 18
Mon, May 18, 2:51 PM ET, by Corey Rosenbloom

The market was at risk for a “Melt Up” or “Collapse Higher” today and heated ...

Today's Strongest and Weakest Dow Stocks Right Now May 18
Mon, May 18, 12:31 PM ET, by Corey Rosenbloom

With the market tilting toward the “Breakout” or “Melt-Up” outcome I highlighted in this morning’s ...

Breakout or Bull Trap? A Quick Plan for the SP500 and Dow Now
Mon, May 18, 11:21 AM ET, by Corey Rosenbloom

Right now we’re playing the “Will it really break out or is this just another ...

What We Thought was a Sideways Range was NOT What We Assumed
Fri, May 15, 6:11 PM ET, by Corey Rosenbloom

Quite simply, what we THOUGHT was a Sideways Range was NOT actually a Sideways Trading ...

What is Moving in the Market Today Update and Stock Scan May 15
Fri, May 15, 1:41 PM ET, by Corey Rosenbloom

What’s going on behind the scenes of the stock market today as a possible Bull ...

A Quick Way to Chart the Cycles in Volatility
Thu, May 14, 3:11 PM ET, by Corey Rosenbloom

There’s a quick and easy way to chart Volatility and assess whether we’re in a ...

Is This the Tradable Breakout in Gold?
Thu, May 14, 10:31 AM ET, by Corey Rosenbloom

Wednesday saw a huge impulse movement for Gold into a key target. What happens if ...

Still on Breakout Watch for the SP500
Thu, May 14, 10:11 AM ET, by Corey Rosenbloom

2015 so far has given us two tight range consolidations in the S&P 500 and ...

Revisited - Stepping Inside a Volume Divergence
Wed, May 13, 10:41 AM ET, by Corey Rosenbloom

What happens when price rallies into resistance with declining (diverging) volume? Let’s step inside this ...

Revisiting How to Trade a Simple Bull Flag
Tue, May 12, 4:41 PM ET, by Corey Rosenbloom

One of my favorite intraday patterns is the bull and bear flags. How do you ...

Quick Insights on Volume and Open Interest
Tue, May 12, 10:31 AM ET, by Corey Rosenbloom

Traders frequently combine volume studies with price studies and indicators to gather a larger picture ...

CME Breaks into Open Air Buy Zone to Continue Strong Uptrend
Mon, May 11, 11:11 AM ET, by Corey Rosenbloom

CME Group (CME) offered traders a breakout buy opportunity as the strong uptrend continued. Shares ...

Join Me Live Wednesday Morning for a Live Trading Challenge at the Money Show Las Vegas
Fri, May 8, 7:31 PM ET, by Corey Rosenbloom

I’m not quite sure what I got myself into but I eagerly accepted a challenge ...

Short Squeezed Bullish Surging Market Update and Big Stock Scan May 8
Fri, May 8, 2:11 PM ET, by Corey Rosenbloom

The trading range continued which meant that today’s session was another expected bullish surge up ...

Triple US Stock Market Index Chart and Level Update
Fri, May 8, 1:11 PM ET, by Corey Rosenbloom

This morning’s Jobs Report was the catalyst that continued the rally off support as price ...

Walmart WMT at Critical Support Pivot Planning
Thu, May 7, 3:11 PM ET, by Corey Rosenbloom

Wal-Mart is a component in the Dow Jones Index that is facing a critical support-test ...

Relief Rally Market Update and Big Stock Scan May 7
Thu, May 7, 2:31 PM ET, by Corey Rosenbloom

Surprisingly, the market is behaving normally at least in terms of efficient movement between – ...

May 6 Collapsing Stock Market Update and Big Trender Stock Scan
Wed, May 6, 2:51 PM ET, by Corey Rosenbloom

After an overnight bounce off daily support, sellers again dominated the market today, resulting in ...

May 5 There She Goes Market Liquidation Update and Bearish Stock Scan
Tue, May 5, 3:21 PM ET, by Corey Rosenbloom

With price doing exactly what it should be doing given the weakness and numerous divergences ...

Crude Oil Finally Breaks Through to Open Air Pocket
Tue, May 5, 11:21 AM ET, by Corey Rosenbloom

Crude Oil broke through a critical resistance cluster today triggering a breakout into “Open Air.” ...

Disney DIS Surprises with New Highs but Watch the Trap
Tue, May 5, 10:21 AM ET, by Corey Rosenbloom

Disney (DIS) – one of the strongest trending names in the Dow Jones Index – ...

John Carter's "How to Make Money in the Stock Market" Intro eBook
Mon, May 4, 7:41 PM ET, by Corey Rosenbloom

If you’re a brand new aspiring trader, or even an intermediate trader looking to refresh ...

John Carter's "Making Money in the Stock Market" Intro eBook
Mon, May 4, 7:31 PM ET, by Corey Rosenbloom

If you’re a brand new aspiring trader, or even an intermediate trader looking to refresh ...

May 4 Stock Scan and Neverending Bull Trend Market Update
Mon, May 4, 2:51 PM ET, by Corey Rosenbloom

Quick – let’s take a poll. When will this bull market end? Never? Good guess! ...

Essential Make or Break Level Brewing in Keurig Green Mountain Coffee GMCR
Mon, May 4, 1:41 PM ET, by Corey Rosenbloom

“Will it break or will it hold?” That is the key question facing traders as ...

Current Low Volatility Forecasting a High Volatility Future
Mon, May 4, 1:11 PM ET, by Corey Rosenbloom

If you’re finding the current low volatility environment boring or lackluster, wait a few more ...

Plotting and Planning the Next Swing Trade in Crude Oil
Sun, May 3, 2:11 PM ET, by Corey Rosenbloom

Crude Oil traded powerfully up to a known resistance target, and we’ll plan our next ...

Bull Trap Down to Support in Apple AAPL Trade Planning
Fri, May 1, 12:51 PM ET, by Corey Rosenbloom

Apple (AAPL), just like the broader S&P 500, snapped a Bull Trap on a failed ...

A Hideous Bull Trap Snaps Gold GLD Traders
Thu, Apr 30, 4:51 PM ET, by Corey Rosenbloom

If you’re trading Gold or the ETF GLD this week, you probably are suffering a ...

A Quick Level Planning SP500 Update on the Bull Trap Breakdown
Thu, Apr 30, 4:11 PM ET, by Corey Rosenbloom

Today’s Breakdown under support officially triggers a “Bull Trap” Outcome and tilts the market to ...

Bears Claim Victory Market Update and Trending Stock Scan to End April
Thu, Apr 30, 3:21 PM ET, by Corey Rosenbloom

I’m seeing bears celebrate today’s sell-swing but this is actually the most logical/expected outcome given ...

A Second V-Spike Reversal Day and Big Stock Scan GDP Fed April 29
Wed, Apr 29, 3:41 PM ET, by Corey Rosenbloom

US GDP, a Federal Reserve (FOMC) announcement, a Dollar breakdown, Twitter’s (TWTR) breakdown, a V-Spike ...

Down for the Dollar and Up for the Euro on GDP Fed Day
Wed, Apr 29, 1:51 PM ET, by Corey Rosenbloom

Today’s surprise decline in the reported US GDP was the catalyst that finally broke the ...

  More articles:  1 2 3 4 5 6 7 next »

ABOUT US »   ADVERTISE »   CONTACT US »   TERMS OF USE & PRIVACY POLICY »

Lesson in Divergences Plus Trendline Breaks in Dollar March 31 | Self Directed Investor | Copyright © 2008 - 2015, All Rights Reserved

Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners. In no way should any content contained herein be interpreted to represent trading or investment advice. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.

SDI is associated with: ValueForum.com -- a subscription-based online social networking forum of serious individual investors. | MarketNewsVideo.com -- videos appearing on SDI are produced by Market News Video. | TickerTech.com -- stock quote content appearing on SDI is at least 20 minutes delayed and is powered by Ticker Technologies. | GoldStockStrategist.com -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on gold mining companies.