Divergence Example and how to confirm them with ADX

I am sure, you have read and seen many example of divergence. However, it's easy to miss this formation. Unless you have MACD and you are checking constantly.

If you closely look at MACD formation, the Signal in Red has cut through the MACD line in Blue. Also, as the dotted yellow arrow shows, it is going up and making higher high.

On the chart, you can see that this pair is making Lower Lows. This discrepancy and difference between MACD and chart is called "Strong Bullish Divergence".



One way of confirmation on Divergence is using the ADX behavior. Blue line is ADX line and shows the strength of the direction of the chart, regardless Bullish or Bearish. It's like RMP in the cars. Just show the power of the move.

DI+ in Green shows the Bullish move which in this case has cut through the middle line in Gray Dotted,
AND
it has cut through Orange line of DI- which it means Bulls are in charge.




Conclusion is that there is a great chance of Bullish move for some time. It's hard to predict in this particular example, since Dollar is going down dramatically.

Divergence are not 100% all the time. However, I personally check them with ADX for additional confirmation.

Good luck traders.