Divergence I - Understanding

Before we start building a system and getting into the technicals we still need a last little bit of theory.

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Theory

Divergences in trading, might sound familiar when it comes to indicators. That's the most common usage in the world of trading.


BUT within EXODUS we are using divergence within our system, between our pairs and indices.


So as quoted, what is a divergence?

Divergence is when the price of an asset is moving in the opposite direction of a technical indicator such as an oscillator, or is moving contrary to other data.”


Divergence warns that the current price [trend] may be weakening, and in some cases may lead to the price changing direction.


It's exactly the same concept, but then between your index, in our case DXY and our primary pairs such as GBPUSD and EURUSD.

See it as a steam engine train, and when there is a divergence it's because our wagons have decoupled.


DXY is the engine, and EU and GU are the wagons.... if they are not correlated = divergence.