Learning to read price and its relationship to averages is a valuable skill that can be used in trading any market. Whether you trade stocks, Forex, or futures, reading price relationships is how traders profit. Convergence is described as when Price Action is generally following the same path as what we are seeing on our technical indicator. So, for example, in an uptrend where the market is making higher highs and higher lows, we would also be seeing signs of strength in our technical indicator of choice. This is a sign of continuing momentum in price and would suggest that a trend has a higher probability of continuation. The same would be said for a downtrend, too, but the market would be making lower lows and lower highs with weakness showing on the indicator, giving the trader clues that there is still momentum in the downside moves. Basically, Price and the Indicator are doing the same thing, or converging. Divergence is described as when Price Action is not following the same path as what we are seeing on our technical indicator. In an uptrend of higher highs and higher lows, we would now be seeing weakness in our technical indicator of choice. This is now a sign that momentum is beginning to decrease, suggesting that the trend has a higher probability of reversing. Likewise, we would look for the opposite signals in a downtrend, where the price action would be showing lower lows and lower highs, but the indicator would instead be giving us signs of strength, suggesting the possibility of waning momentum and an upcoming move to the upside. To summarize, Price and the Indicator are doing the opposite thing, or diverging. Stock and Forex CCI
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