This case study is based on the chart for CBIP, a counter listed on the Bursamalaysia.
The point of focus is bullish divergence.
This phenomenal of bullish divergence does not occur very frequently but once it appears it can be a good opportunity to act on it for profitable trade.
Look at the chart above, which is captured on 4th November 2010.
I have drawn two vertical lines to show the bullish divergence between price of CBIP and MACD
Bullish divergence here means that when the price of CBIP decline or make lower low the MACD forms higher low. Similarly there is also a bullish divergence between price of CBIP and its RSI.
Of course, on 4th November 2010 it is already too late to use this information because from the occurrence of the divergence, which is around 22nd May 2010 , to the price level on 4th November 2010 there is a price increase of about RM1.00. Just imagine you were looking at CBIP chart on 22nd May 2010 and a few days later you are convinced that bullish divergence has occurred and bought some CBIP shares and just hold on and wait,you would have made a handsome gain. Never mind we (including me) miss this opportunity but we should not miss the opportunity to learn the lesson of how to use the bullish divergence to trade profitably.
Any comment can be addressed to the writer, Lee Huong Sing
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