3. The front divergence as a continuation signal
Often only a front divergence appears as a primary trend continuation signal. In the examples above, when the primary trend (shown by the red dashed arrow) is down, there appears a temporary retracing of the primary trend, which is represented by the green arrow moving up in the middle. Surge will often catch the end of these retraces with a front divergence.
Now there is something to be said about the front divergence. If you examine it carefully, you will see that the bend in the Surge comes about 3 bars late. In practice, Surge tends bends before price, sometimes at the same time as price, and sometimes after price such as in this example. To determine the end of trend condition in this case, it is helpful to use some other tool to trigger an entry. This is what the companion Velocity oscillator is for. More on this later.
Note that there was no divergence sell signal on the red candle under 1 on the example on the right. If anything, this would be the first appearance of a back divergence (lower high on a down trend, and higher high on the Surge). But because the market did not make a significant new low on the next swing the next thing to look for was a higher high and Surge divergence continuation signal.
Either way, the Surge can help you to avoid these sub-trends and take advantage of only the larger trends.
In the example above left, when the trigger occurs to sell, the Surge is at a level below its previous high (while the market is making higher highs). As long as the time period between the current Surge and its last high is consistent with the period of its previous highs, it means it will likely turn around at the trigger point (though not always, as the market is often imperfect).
In the example above right, the market price didn't make higher highs, however Surge diverged more relative to the market making lower highs. This occurred because the market was so weak at this point there just weren't enough buyers to make a new high like the above retracement. Like I said, Elliott waves in the market are rarely perfect.
Next we will talk about the back-then-front divergence end of trend signals which often occur in full 5-wave Elliott wave conditions.
Now there is something to be said about the front divergence. If you examine it carefully, you will see that the bend in the Surge comes about 3 bars late. In practice, Surge tends bends before price, sometimes at the same time as price, and sometimes after price such as in this example. To determine the end of trend condition in this case, it is helpful to use some other tool to trigger an entry. This is what the companion Velocity oscillator is for. More on this later.
Note that there was no divergence sell signal on the red candle under 1 on the example on the right. If anything, this would be the first appearance of a back divergence (lower high on a down trend, and higher high on the Surge). But because the market did not make a significant new low on the next swing the next thing to look for was a higher high and Surge divergence continuation signal.
Either way, the Surge can help you to avoid these sub-trends and take advantage of only the larger trends.
In the example above left, when the trigger occurs to sell, the Surge is at a level below its previous high (while the market is making higher highs). As long as the time period between the current Surge and its last high is consistent with the period of its previous highs, it means it will likely turn around at the trigger point (though not always, as the market is often imperfect).
In the example above right, the market price didn't make higher highs, however Surge diverged more relative to the market making lower highs. This occurred because the market was so weak at this point there just weren't enough buyers to make a new high like the above retracement. Like I said, Elliott waves in the market are rarely perfect.
Next we will talk about the back-then-front divergence end of trend signals which often occur in full 5-wave Elliott wave conditions.
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