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Reverse Divergence , in this article Loren responds to a question regarding this.
Thank you for the note Bruce, good questions.
I have drawn a representation of the appearance of reverse divergences together with a short explanation which I attach. Reverse divergences are the exact opposite of classic divergences and are easy to identify once you become familiar with their appearance in up or down trends. As distinguished from classic divergences reverse divergences almost never fail in their prediction. The reason is that they only appear in an existing trend, up or down. Therefore the technician is merely adding to or entering an existing trend. Class A vs. Class B, yes there is a significant difference. According to Dr. Elder class A divergences never fail whereas class B may fail. Your questions regarding RSI and trend issues are discussed in John Hayden’s article Trend determination using RSI (available in downloads section).
Also both articles by M. Pring and B. Star regarding reverse divergences are also available. They do a better job of explaining the issues than I can do here. With respect to your question regarding MACD divergence. Yes, MACD will display, most of the time, divergences of both types, classic and reverse. However RSI is more accurate in faithfully revealing divergences than MACD. Furthermore RSI is a quicker indicator than MACD. RSI is the principle indicator with MACD used for confirmation only. If there is a difference between the two indicators RSI is the better choice.
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