4.02 Divergence vs. Convergence

What does divergence generally mean in the context of economics and finance?

• Two things moving in the same direction

• A type of financial instrument

• The merging of two economic policies

• Two things moving apart

What is convergence in the context of economics, finance, and trading?

• Two forces moving together

• A type of trading strategy

• A market inefficiency

• When two prices remain constant

What does positive divergence indicate?

• A weakening price trend

• A potential trend reversal

• A strong market trend

• Stable economic conditions

Why is convergence assumed to occur in a normal market?

• To prevent arbitrage opportunities

• An efficient market won't allow two prices at the same time

• Due to regulatory requirements

• Because of market inefficiencies

What role does arbitrage play in the context of convergence?

• It helps in identifying undervalued stocks

• It indicates a strong market trend

• It's a strategy to exploit market inefficiencies

• It's used to predict future market movements

What is the primary interest of technical traders regarding divergence?

• As a signal to trade

• To find intrinsic values of assets

• To identify stable trends

• To avoid market risks

How does divergence affect trading signals?

• It does not provide timely trade signals on its own

• It reduces the risk of trading

• It guarantees profitable trades

• It provides timely trade signals

What does negative divergence signal?

• A potential increase in price

• An upcoming financial crisis

• A stable economic condition

• Prices going higher while indicators signal a new low

Why might traders not rely exclusively on divergence?

• It only works in bear markets

• It is too complex to understand

• It can last a long time without price reaction

• Because it guarantees profits

What is the significance of oscillators in identifying divergence?

• They indicate the best time to buy stocks

• They predict economic downturns

• They map out bands between two extreme values

• They are used to calculate the intrinsic value of assets