indicator in this way. You simply look for the past previously lowest point that the DPO went to on your current chart, and if it goes to this same level and then starts to reverse that it is probably a level that prices are not going to go below. You can see in the above example, the DPO went to the exact level as the lowest previous low of the DPO in this chart and at that point, that was the lowest level that prices of the EUR/USD reached before reversing.
This is an example of the DPO showing divergence. As you can see, prices were rising and the DPO was falling, showing divergence, which was followed by a reversal. Normally when the prices are rising, the overall slope of the DPO will be upward as well, so when the direction of the DPO is the opposite of the direction that prices are moving, this shows strong divergence, as above, and is a probable indication of an upcoming reversal. Divergence on the DPO is a very helpful tool in confirming trades, so it's a good idea to keep an eye out for when this occurs.
This is a text book example of divergence with the DPO and prices on this hourly chart of the EUR/USD. You can see that for several days prices were steadily rising, while the DPO was simultaneously falling, showing a strong divergence. This accurately forecasted a sharp reversal. When you see divergences such as these you should expect to see a reversal before too long. The reversal will most likely occur after the DPO crosses the zero line after divergence is seen on the chart.
This is another example of divergence. It looks a bit different from the other examples but is another kind of divergence you will see. Normally, with each decline of the prices you will also see new low of the DPO, but often when there is an impending reversal prices will make a new low but the DPO will not. You can see the mountains and valleys of the DPO in this chart and with each corresponding decline in prices the new DPO valley would be lower, except where the arrow is pointing, which shows divergence. This was immediately followed by a reversal.
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