II -> Divergence - Diving Deeper

————-- 004 - Diving Deeper

So,

When DXY forms a higher high and is bullish, we anticipate that xxx | usd pairs such as GU and EU should then follow and form lower lows.

When price is aligned, and there is no divergences, our system is in sync. The chances of disrupting the vision is little. Smaller chances of a reversal.

See it as that train analogy, and DXY is leading that train. When everything moves correctly, we do not have to worry that price will be decoupled.

When it is not in sync, we begin to be alert.

So when DXY makes higher highs, we notice how EU makes lower lows.

This is when our system is in sync.

https://www.tradingview.com/x/O2pGQYFL/

Here you see the example, general direction of how price is in sync.

————-- 005 - Non symmetrical Conditions

So when our system is out of sync, we will notice that price does not move in alignment.

So lets take a small example, where DXY forms a higher high, but EURUSD fails to expand lower and form a lower low. Instead it will form a higher low.

This is our crack, here we see divergence.

As DXY creates a higher high, EU fails to make a lower low.

This is where we become decoupled.

Here we can anticipate a reversal to happen, especially if price has already delivered into a certain PDA for DXY.

Here an example, see how price took out BSL on DXY, and formed a local new high. On EURUSD it did not

And now that's how we note the divergence.

————-- 006 - Reversal Example

Look closely at both charts. Notice the system.

Here you see how DXY formulated a higher high, EU formed a higher low.

This was coupled with a PDA that got tapped on higher time-frame... Notice how after the divergence, EU coupled into that displacement and then reversed and synced back into the delivery.

https://www.tradingview.com/x/PwFFkPB2/

————-- 007 - Top Down Example

Identifying the range once again. Can you guess where why we have the range?

You have you POI, with confirmation of HTF sell - side momentum. Wait for the array to be hit.

Now here we start looking for divergences. Seeing as this is on the H1, 60M timeframe, we will start looking at our first ETF time-frame where we will see if we can notice a crack in correlation.

————-- 008 Live example

Right, so when we drop to the smaller ETF, the 15 minute to start with. We want to see some sort of crack in correlation.

https://www.tradingview.com/x/Aso4n03q/

Here we see a clear crack in correlation, notice how DXY formed a higher high, breaking structure, whilst eurusd formed a higher low, instead of a lower low.

This is what we want to see before we move into a good POI. Price printed an adverse signal, this is a good sign. Because this indicates that price is ready for a reversal.

You must understand that divergences are in your favor when you are looking for some sort of catalyst.