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ZM example - RSI and Stochastic divergence indicate trend change
This chart provides a good example of a few things, namely how divergences are powerful indicators of a trading opportunity to come. Please note the following on the chart:
* Bearish divergence - while price made a higher low, RSI and stochastic made lower lows (yellow lines)
* divergence does not always mean a change in trend - sometimes it indicates a pullback to support is coming (be ready to take profits in these "quick" trades)
* the first move down from recent highs created divergence - 10sma was still over 20sma
* most of the time you must be patient and wait for rebound move (red oval) and now you can see the 10sma has gone below 20sma - this is the time to open a trade
* Depending on your trading style, you can place a swing trade on this daily chart, or you can use the daily chart as context for trading on a 15 or 30 min timeframe. If so, then look for trade entry, stops, and targets on the smaller timeframe.
* divergence trades are great with options because when the stock price starts moving counter to the trend there is a nice boost in option prices
* Bearish divergence - while price made a higher low, RSI and stochastic made lower lows (yellow lines)
* divergence does not always mean a change in trend - sometimes it indicates a pullback to support is coming (be ready to take profits in these "quick" trades)
* the first move down from recent highs created divergence - 10sma was still over 20sma
* most of the time you must be patient and wait for rebound move (red oval) and now you can see the 10sma has gone below 20sma - this is the time to open a trade
* Depending on your trading style, you can place a swing trade on this daily chart, or you can use the daily chart as context for trading on a 15 or 30 min timeframe. If so, then look for trade entry, stops, and targets on the smaller timeframe.
* divergence trades are great with options because when the stock price starts moving counter to the trend there is a nice boost in option prices
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.