A technical indicator showing signs of possible change of direction, before the actual price changes direction. An indicator in the overbought area implies that prices may rebound, while in the oversold area it implies that prices may bounce back. Similarly, positive divergence between the price and the indicator implies price may change to the upside, while a negative divergence may hint for a reversal to the downside. Volume is another class of indicators that forecast price action. During an uptrend, volume should increase as buying pressures increases. If volume doesn’t follow through then it hints for a reversal. In a downtrend, volume should be heavier as selling pressure increases. If heavy selling pressure is not accompanied by increased volume then it hints that the downtrend is coming to an end and that a reversal is imminent.
« Back to Glossary Index
« Back to Glossary Index
