What is bottom divergence
So what is bottom divergence?
Bottom divergence means that in the stock market, if the stock price (referring to the K-line) is falling, the lows are lower than the last, and the moving averages are also arranged downward in waves, but the indicators (MACD or KDJ can be used) are upward. That is, it moves upward wave after wave, and the high points are higher than the last. This means that the stock price deviates from the indicator, which is called "bottom divergence."
Bottom divergence generally occurs in the low area of the market. When the stock trend is lower than the previous trough, the stock price has been falling, but the trading volume no longer decreases. At the same time, the MACD indicator does not hit a new low, but also rises. This is called the bottom divergence phenomenon. The bottom divergence phenomenon is generally a signal that the market index may reverse upward at a low level. Bottom divergence means that the stock price has not risen much, but the indicator has rebounded sharply. The stock price keeps making new lows or highs, while the indicators keep moving higher or lower. In practice, the divergence of the MACD indicator is generally more reliable when it appears in a strong market. When the stock price is at a high price, usually only one divergence appears to confirm that the stock price is about to reverse, that is, a top divergence; while when the stock price is at a low level, it usually requires a divergence. It takes several repeated divergences to confirm the bottom divergence. Therefore, the accuracy of the analysis and judgment of the top divergence of the MACD indicator is higher than that of the bottom divergence, which investors should pay attention to.
The bottom divergence structure is a necessary condition for the market to rise, not a necessary and sufficient condition. If you see the market rising, you will definitely find a bottom divergence structure at a certain corresponding level. But if you see a bottom divergence structure, it doesn't mean the market is definitely going up. This is a very simple truth, because the divergence only represents a possible change in the previous trend. There are three types of trends: rising, falling and consolidation. Although a downward trend has ended, it may run an upward trend or a consolidation trend, which is not necessarily related to an increase. This is especially common among individual stocks.
The bottom divergence form is also an important analytical form of the smoothed average convergence and divergence MACD, which can correctly judge whether the bottom divergence of MACD can escape from the top in time. How to use MACD's bottom divergence to judge market trends and find bargain hunting opportunities is the focus of this article. There are three output values in the MACD indicator, one is DIF, one is DEA, and one is MACD. The method we focus on here is to focus on DIF and DEA, and DEA is actually the average trend of DIF, which smoothes the trend of DIF. , combined with DIF, to identify the role of short-term DIF speed direction.
