Article Divergences, Momentum And Rate Of Change

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Oscillators tend to be somewhat misunderstood in the trading industry, despite their close association with the all-important concept of momentum. At its most fundamental level, momentum is actually a means of assessing the relative levels of greed or fear in the market at a given point in time. Markets ebb and flow, surge and retreat – the speed of such movement is measured by oscillators.
Oscillators are most useful and issue their most valid trading signals when their readings diverge from prices. A bullish divergence occurs when prices fall to a new low while an oscillator fails to reach a new low. This situation demonstrates that bears are losing power, and that bulls are ready to control the market again – often a bullish divergence marks the end of a downtrend. Bearish divergences signify potential downtrends, when prices rally to a new high while the oscillator refuses to reach a new peak. In this situation, bulls are losing their grip on the market, prices are rising only...
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