Thursday, July 14, 2005 4:55:17 AM
Divergence of Average True Range & BB Width
Just finally got a chance to check back in… I’m providing an easier chart below for visual recognition, with the price, of course.
Everything’s relative in technical charting. This means that numbers are secondary to the movements and the locations of an indicator as well as that one indicator’s validity is contingent upon the confirmation of the other indicators. The convergence of indicators usually means the continuation of a trend while the divergence of indicators usually means reversal of the current trend.
Under this premise, whenever ATR and Bollinger Band Width start to go their separate ways, it usually signals an imminent reversal. And, whenever they move in the same directions, it means the continuation of the current trend, be it uptrend or downtrend. There are many many ATR and BB Width divergences on this 6-month QQQQ chart. I place blue boxes on some of them for references.
And, so here we are at another juncture of such divergence where we have (1) the high/low/close price differentials between the intraday and/or the previous session are getting tighter - ATR and (2) the differentials between the daily closing price and its running (moving) averages of the past 14 days are getting wider - BB Width. Hence, we have the dichotomy of these 2 different measurements of volatility going the opposite directions – one with narrowing volatility and the other with widening volatility. This divergence simply can not last unless the market just shuts down.
Thus, Something’s Gotta Give… Since the current trend is up, the reversal of such current trend would be down. So, it would be a bearish reversal. And, just for one extra confirmation, the last 3 candlesticks happened to form a “Bearish Deliberation” pattern. This, by all means, needs a 4th day’s (tomorrow) confirmation for validation, but it’s got all the necessary ingredients in the pot and ready to serve.
Just finally got a chance to check back in… I’m providing an easier chart below for visual recognition, with the price, of course.
Everything’s relative in technical charting. This means that numbers are secondary to the movements and the locations of an indicator as well as that one indicator’s validity is contingent upon the confirmation of the other indicators. The convergence of indicators usually means the continuation of a trend while the divergence of indicators usually means reversal of the current trend.
Under this premise, whenever ATR and Bollinger Band Width start to go their separate ways, it usually signals an imminent reversal. And, whenever they move in the same directions, it means the continuation of the current trend, be it uptrend or downtrend. There are many many ATR and BB Width divergences on this 6-month QQQQ chart. I place blue boxes on some of them for references.
And, so here we are at another juncture of such divergence where we have (1) the high/low/close price differentials between the intraday and/or the previous session are getting tighter - ATR and (2) the differentials between the daily closing price and its running (moving) averages of the past 14 days are getting wider - BB Width. Hence, we have the dichotomy of these 2 different measurements of volatility going the opposite directions – one with narrowing volatility and the other with widening volatility. This divergence simply can not last unless the market just shuts down.
Thus, Something’s Gotta Give… Since the current trend is up, the reversal of such current trend would be down. So, it would be a bearish reversal. And, just for one extra confirmation, the last 3 candlesticks happened to form a “Bearish Deliberation” pattern. This, by all means, needs a 4th day’s (tomorrow) confirmation for validation, but it’s got all the necessary ingredients in the pot and ready to serve.
David
#board-3693
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