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Worksheets4.02 Divergence vs. Convergence
Total questions: 10
Worksheet time: 5mins
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
