Momentum divergences put is squarely in conflict with another major market axiom, which is that Trends have Greater Odds of Continuation than Reversing. It is difficult to fight a trend, and some trends show greatest strength at their climax or conclusion.

Momentum divergences are natural patterns that emerge when (in this case) buying pressure is slowing relative to the past. The implication is that the end of the prior price motion will slow when buyers are satisfied (or there are no more buyers) and ‘bag-holders’ are forced to sell… as well as savvy traders seek to profit from this unfolding by (as you highlight) initiating new short positions, further fueling the decline.

Another thing, momentum divergences simply highlight conditions, and don’t necessarily provide objective buy/sell levels unless you are an aggressive trader. You’ll almost have to take some price heat until your theorem (price will correct) is proven true (if at all).

Typically, a momentum divergence trade is good for a small target with a tight stop, but sometimes you get lucky and take home more in a divergence trade than you expected, which is always nice. But you’re right, it’s difficult psychologically to fight an established trend.

Thanks for the comment!

Maybe it’s just bad timing

When you bring up the momentum divergencies, it looks like the markets are just adding one more divergency after another, and yet still move up and up and up. How can you avoid to fight the trend and profit from divergencies?
Thanks ,Joerg