It’s always great to see the resolution of a classic trade, if for nothing else than for an educational resource.

AIV (Apartment Investment and Management Co) recently resolved a lengthy buy divergence in a fierce way:

Typically, divergence trades are only good for a small, counter-trend target, but lengthy, multiple swing divergences can frequently precede explosive moves out of equilibrium and even precede trend reversals as well.

To highlight a divergence, observe your favorite momentum oscillator (Rate of Change, RSI, MACD) and compare swing highs and swing lows in price with swing highs and lows in the oscillator.

Try to look beyond what the classic textbooks teach and use oscillators in non-traditional ways.

Recall also that divergences are counter-trend by nature, but can often lead to great profits if identified early.

At the minimum, you should probably exit any longer term trades should you observe lengthy divergences. Like a coiled spring, you never know when or with how much force the price will ’snap.’