Thursday, December 1, 2011

Negative divergence

The chart above is /ES hourly chart. You can see the price developed negative divergence with the RSI(14) indicator as opposed to the coordinated move on the previous line. I expect /ES to be lower in few hours than now. Hence, I close all my VST positions and move to cash. What would compel me to short it here is if we see a lower high on the RSI (14) against a higher high on the price. Am I expecting a down day tomorrow? Possibly! But, this divergence could be resolved overnight. The chances are slim for overnight resolution because of the divergence. Don't worry about the accuracy of the trendlines. The concept is important here but not the lines. 

Subscribe here and follow by Email