Charting AAPL as AAPL is a stock I'm watching this week (refer to Weekly Playbook to see levels). It seems as if there's a Bearish Divergence on AAPL's 4h and hourly chart. This could mean a quick sell off on AAPL if we break certain levels. However, this could also mean that today's end of day sell off was the bearish divergence reversal. Never rely completely on just a signal, pattern, or catalyst. Make sure to always watch price action as well. If you have price action set AND a pattern, signal, or catalyst then your trade is a high probability trade.
Okay, so you're probably wondering what a Bearish Divergence is, right?
Well, a Bearish Divergence is when the stock itself is making higher highs but the technical indicator is making lower highs. I like to rely on the MACD indicator for divergences. Others use the RSI.
Here is an example of a Bearish Divergence:
Notice in the image above how the stock has great momentum in an uptrend with the stock making higher highs. However, while the stock is making higher highs the MACD is making lower highs (pink lines). This indicates a Bearish Divergence, which usually results in a reversal for the stock.
NOTE: It's important to note that Bearish Divergences do not always work. There are times where the stock is making higher highs, and the MACD is making lower highs but the stock will still continue to increase in price and rally up. This is because sometimes momentum in the uptrend is stronger and buyers will keep pushing the stock up. With that being said, that is why I never recommend relying on just one indicator, signal, or pattern. Always have a full trading plan set to support your indicator, signal, or pattern.
Here's the Bearish Divergence that I am analyzing on AAPL today (August 19th, 2020):
Notice in the image above how AAPL has been rallying up, but the MACD is making lower highs. This indicates a Bearish Divergence. I will be playing the downtrend on AAPL only if : AAPL could break certain levels, if there is selling pressure and sellers are aggressive, and if the market internals like, SPY, are in a downtrend.
IMPORTANT TO NOTE: I am not a registered or licensed financial advisor. This is just for educational purposes only and this is just my opinion. Taking a trade is your personal responsibility and is in no way affiliated with me or, tradeswithrama.