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

Amazon AMZN Bullish Surge from Big Divergence on Support
Fri, Jan 30, 1:41 PM ET, by Corey Rosenbloom

Amazon’s (AMZN) solidly earnings beat expectations yesterday, resulting in a breakout and stock surge higher. ...

Quick Lessons from Divergences and Reversals in MannKind MNKD
Thu, Jan 29, 5:31 PM ET, by Corey Rosenbloom

A reader asked me to take a look at MannKind (MNKD) and I wanted to ...

Jan 29 Reversal Update and Trending Stock Scan
Thu, Jan 29, 2:31 PM ET, by Corey Rosenbloom

After the Fed Day Wednesday, stocks simply traded down to the lower support of the ...

Surging Prices and Obvious Trend in US Treasuries TLT
Wed, Jan 28, 3:31 PM ET, by Corey Rosenbloom

It’s no longer a “stealth” movement but a blatant, obvious development that Bond/Treasury prices have ...

Average Annual Normalized VIX Futures Term Structure, 2004-2014
Wed, Jan 28, 8:11 AM ET, by Bill Luby

One graphic I post periodically that never fails to generate a great deal of interest ...

Caterpillar CAT Shatters Support: Updating New Trading Levels
Tue, Jan 27, 12:21 PM ET, by Corey Rosenbloom

Caterpillar (CAT) shares shattered support at the $85.00 per share level on an earnings miss ...

Plotting the Current Range and Planning the Future SP500 Breakout
Mon, Jan 26, 3:21 PM ET, by Corey Rosenbloom

What goes up must come down, and in the market, what goes sideways must break ...

Jan 26 Recovery Market Update and Trending Stock Scan
Mon, Jan 26, 2:51 PM ET, by Corey Rosenbloom

Stocks stalled after surging from the QE intervention announcement in Europe. However, today’s session saw ...

The Year in VIX and Volatility (2014)
Mon, Jan 26, 8:11 AM ET, by Bill Luby

This is the seventh year in a row I have offered a retrospective look at ...

Top Posts of 2014
Sun, Jan 25, 5:51 PM ET, by Bill Luby

Since I launched VIX and More some eight plus years ago, I have devoted one ...

Support, A Breakout, and Missing Out in Netflix NFLX
Fri, Jan 23, 12:21 PM ET, by Corey Rosenbloom

If you didn’t catch Netflix (NFLX) off the critical support level, and now the breakout ...

Jan 22 Euro QE Market Update and Stock Scan
Thu, Jan 22, 3:21 PM ET, by Corey Rosenbloom

Like the expected knee-jerk reaction, stocks rallied on news that the European Central Bank will ...

Jan 21 Intraday Update and Big Trend Stock Scan
Wed, Jan 21, 2:51 PM ET, by Corey Rosenbloom

What levels are important in the market right now and which stocks are the top ...

Eight Top Intraday Trending Stocks for Jan 20
Tue, Jan 20, 4:41 PM ET, by Corey Rosenbloom

Which stocks topped our algorithmic list of strongest (and weakest) intraday trending stocks today? Let’s ...

Four Strong Trends Kicking off 2015
Tue, Jan 20, 4:11 PM ET, by Corey Rosenbloom

As 2015 continues, we’re seeing persistent trends develop across key markets. Let’s take a look ...

Jan 16 Stock Scan and Reversal Market Update
Fri, Jan 16, 3:31 PM ET, by Corey Rosenbloom

After yesterday’s Swiss Franc surprise (see the “Aftermath Update” post from this morning), the US ...

Documenting the Damage on the Swiss Franc Fallout
Fri, Jan 16, 1:41 PM ET, by Corey Rosenbloom

I wanted to highlight the ‘damage’ or intense price movement on select FOREX pairs because ...

Trade Planning off the 2000 Key Level in the SP500
Thu, Jan 15, 4:11 PM ET, by Corey Rosenbloom

It’s time once again to plan our intraday and swing trades off the key inflection ...

Jan 14 Selling Market Update and Trending Stock Scan
Wed, Jan 14, 1:51 PM ET, by Corey Rosenbloom

We have yet another sell session in motion, let’s take a moment to highlight key ...

Turnaround Tuesday Market Update and Stock Scan Jan 13
Tue, Jan 13, 3:23 PM ET, by Corey Rosenbloom

So far today has been a thrilling session. Let’s jump straight into our mid-day “turnaround” ...

Jan 12 Falling Market Update and Trending Stock Scan
Mon, Jan 12, 1:51 PM ET, by Corey Rosenbloom

We have another sell session in motion, let’s take a moment to highlight key levels, ...

Support and Resistance Planning to Start January 12
Mon, Jan 12, 11:51 AM ET, by Corey Rosenbloom

The S&P 500 (and Dow Jones Index) has compressed between moving average support and resistance ...

Are You Seeing this Stealth Move in Bonds TLT?
Fri, Jan 9, 2:31 PM ET, by Corey Rosenbloom

Pop Quiz – would you have made more money holding bonds all of 2014 or ...

A Flag and Planning the Next Swing in Apple AAPL
Fri, Jan 9, 12:31 PM ET, by Corey Rosenbloom

Which way will top trending stock Apple (AAPL) swing next? Let’s pinpoint the key levels ...

Bullish Breakout Stock Scan and Market Update Jan 8
Thu, Jan 8, 2:51 PM ET, by Corey Rosenbloom

This morning’s breakout above the market resistance level triggered a wave of buying – both ...

Relative Strength and Weakness Stock Scan Candidates for Jan 7
Wed, Jan 7, 3:41 PM ET, by Corey Rosenbloom

For today’s “Post-Fed Minutes Update,” let’s focus on the top four Relative Strength leaders and ...

2014 Had Third Highest Number of 20% VIX Spikes
Tue, Jan 6, 1:11 PM ET, by Bill Luby

By most measures, one would think that 2014 was a relatively quiet year for the ...

SP500 Completing the Arc into Target Levels
Tue, Jan 6, 11:31 AM ET, by Corey Rosenbloom

I’ve been highlighting this “Arc” or “Mirror Image” Pattern in the S&P 500 and US ...

Market Crashing Stock Scan and Level Update for Jan 5
Mon, Jan 5, 3:11 PM ET, by Corey Rosenbloom

Stocks tumbled sharply this morning, breaking a key support level which exacerbated the selling pressure ...

Dec 31 Quick Market Update and Stock Scan
Wed, Dec 31, 2:11 PM ET, by Corey Rosenbloom

So far, stocks are taking a breather (retracing) to end 2014 with two final days ...

Beautiful Arc Trading Opportunity for CME
Tue, Dec 30, 3:31 PM ET, by Corey Rosenbloom

CME Group (CME) is forming an ‘Arc Trendline’ pattern that is among my favorite patterns ...

Five Insights Only Monthly Charts Can Reveal to You
Tue, Dec 30, 10:41 AM ET, by Corey Rosenbloom

We’re accustomed to seeing stocks at all-time highs but what about other markets? And what ...

Dec 23 GDP Surge Breakout and Trending Stock Scan Update
Tue, Dec 23, 1:21 PM ET, by Corey Rosenbloom

Santa just stuffed our stocking earlier with a 5.0% US GDP growth, sending stocks gapping ...

Gaining Perspective from a Monthly Chart View
Tue, Dec 23, 10:11 AM ET, by Corey Rosenbloom

As we slide toward the end of 2014, let’s take a moment to review the ...

Dec 22 Range Midday Update and Strong Trending Stock Scan
Mon, Dec 22, 1:51 PM ET, by Corey Rosenbloom

We begin our holiday week awaiting the possible “Santa Claus” bullish rally to keep the ...

Dec 19 Rally Update and Daily Stock Scan
Fri, Dec 19, 3:11 PM ET, by Corey Rosenbloom

Up, up and away in the aftermath of the Fed Day! Stocks continued their short-squeezed ...

A Quick Grid of Overseas ETFs and Trends
Wed, Dec 17, 3:41 PM ET, by Corey Rosenbloom

With trends shifting and reversing across global markets, let’s step back and take a quick ...

Dec 17 Fed Day Market Update and Trending Stock Scan
Wed, Dec 17, 3:31 PM ET, by Corey Rosenbloom

With today’s Fed Day generating the typical pattern and volatility, let’s focus on our levels ...

Dec 16 Fed Day Market Update and Trending Stock Scan
Wed, Dec 17, 2:51 PM ET, by Corey Rosenbloom

With today’s Fed Day generating the typical pattern and volatility, let’s focus on our levels ...

Dec 16 Stock Scan and Market Update
Tue, Dec 16, 3:11 PM ET, by Corey Rosenbloom

This time, buyers rushed to buy value at a test of the key 1,980 confluence ...

The Arc of Crude Oil to Watch for Reversal
Tue, Dec 16, 1:41 PM ET, by Corey Rosenbloom

Arc Trendline Patterns are among my favorite things to see on a chart because of ...

Dec 15 VSpike Reversal Intraday Update and Stock Scan
Mon, Dec 15, 2:21 PM ET, by Corey Rosenbloom

After what looked like a positive opening, stocks continued their sell-swing lower, breaking the 2,000 ...

Dec 11 Power Rally Intraday Update and Stock Scan
Thu, Dec 11, 2:11 PM ET, by Corey Rosenbloom

Right on cue, and directly from the key confluence level I highlighted yesterday, the bulls ...

Look Out Below if this Simple Support Level fails for the SP500
Wed, Dec 10, 5:51 PM ET, by Corey Rosenbloom

The S&P 500 has retraced quickly to a known support target and we’ll focus on ...

Dec 10 Breakdown and Breakout Intraday Update with Stock Scan
Wed, Dec 10, 2:41 PM ET, by Corey Rosenbloom

After a stellar intraday reversal yesterday, sellers continued their pressure today with a breakdown Trend ...

Fibonacci Price Level Planning Grid for Tesla TSLA
Tue, Dec 9, 3:21 PM ET, by Corey Rosenbloom

What broader price levels are important for trading (or planning trades in) Tesla? Let’s chart ...

Dec 9 Gap into Support Update and Stock Scan
Tue, Dec 9, 1:51 PM ET, by Corey Rosenbloom

Even though we’re seeing the widely expected and highly logical pullback, buyers continue to show ...

Charting the Strongest and Weakest Sectors XLF and XLE
Mon, Dec 8, 4:41 PM ET, by Corey Rosenbloom

A longer-term comparison reveals the current strongest sectors and weakest sector for trade and position ...

Dec 5 Stock Scan and New High Market Update
Fri, Dec 5, 1:51 PM ET, by Corey Rosenbloom

Can this market actually go down? No. It can’t. ...

Watch these Key Levels for Trading the Breakdown in WYNN
Fri, Dec 5, 12:51 PM ET, by Corey Rosenbloom

If you’re trading WYNN stock or considering it – or just want to learn a ...

  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 over 1000 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.