As the name suggests Sibbet Demand Index Divergence is a divergence trading system that can be useful in trading trend following setups and reversal trading setups.
This system is based on the moving average of the price data and helps investors understand whether the bullish or bearish movement in the price is strengthening or weakening.
Let’s understand the working of Sibbet Demand Index Divergence trading system.
Sibbet Demand Index Divergence Overview
Sib bet Demand Index Divergence is displayed with a histogram which graphs the difference between two moving average of price data. Another moving average is applied on this histogram which is called signal line.
When the histogram formation is above the zero lines then the market is in an uptrend and when the histogram formation is below the zero lines then the market is in a downtrend. The crossover of the histogram line and the signal line is also an indication of the change in direction of the trend.
Sibbet Demand Index Divergence Explanation
Sibbet Demand Index Divergence also measures the momentum of the price data. When price makes higher high and SDTD makes lower high then it’s called Bearish simple divergence.
When price makes lower low and SDTD makes higher low then it’s called bullish simple divergence. Divergence is an indication of the weakening of the ongoing trend. Traders can trade in direction of divergence to pick the early reversal trades.
When price makes a lower low, but SDTD makes a higher low, it’s called Hidden bullish divergence. When price makes lower high but SDTD makes higher high it’s called hidden bearish divergence. Hidden divergence is an indication that the ongoing trend is strong and the trend can continue.
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Traders should trade in the direction of divergence, by using crossover of histogram and signal line as a trigger. Alternatively, traders can apply trend lines breakout and breakdown for taking entry.
Sibbet Demand – Buy Conditions
- Price forming lower high and lower low structure
- Bullish Divergence in price and Sibbet Demand Index
- Bullish crossover of the Histogram line and the signal line is a trigger for long trades.
Sibbet Demand – Sell Conditions
- Price forming higher high and higher low structure.
- Bearish Divergence in price and Sibbet Demand Index.
- Bearish crossover of the Histogram line and the signal line is a trigger for short trades.