Divergence of MAs
Divergence of Moving Averages (MAs) is a technical analysis tool used to identify potential changes in the direction of a security’s price. It is based on the idea that when the price of a security moves in one direction, and the moving average of the security moves in the opposite direction, it is a sign that the security’s price may be about to reverse. This is because the moving average is a lagging indicator, and when it fails to follow the price, it is a sign that the trend may be about to change.
History of Divergence of MAs
The concept of divergence of MAs was first introduced by Charles Dow in the late 19th century. He believed that when the price of a security moved in one direction, and the moving average of the security moved in the opposite direction, it was a sign that the security’s price was about to reverse. This concept has been used by traders ever since, and is still a popular tool for technical analysis today.
Comparison of MAs
| MA Type | Time Period | Signal Strength |
|---|---|---|
| Simple Moving Average | Short-term | Weak |
| Exponential Moving Average | Medium-term | Moderate |
| Weighted Moving Average | Long-term | Strong |
Summary
Divergence of MAs is a technical analysis tool used to identify potential changes in the direction of a security’s price. It is based on the idea that when the price of a security moves in one direction, and the moving average of the security moves in the opposite direction, it is a sign that the security’s price may be about to reverse. For more information on this topic, you can visit Investopedia, The Balance, and Investing.com.
See Also
- Moving Average
- Technical Analysis
- Price Action
- Support and Resistance
- Trend Lines
- Indicators
- Oscillators
- Chart Patterns
- Volume
- Volatility
