Savvy traders know how to spot divergence. This is a technical term that really involves rate of change. If something is still going down, but going down at a slower pace, then it is more likely that up is the next move. This can work as part of logic to buy, or to cover shorts.
It can also work as a tool to hold strong positions. If you spot an immanent move and get it right, then it often pays to "wait for divergence" before an exit, ie a slowing of the pace of the up move.
As soon as one starts using Bollinger bands and moving averages then all timeframes are in play from quarterly or even down to 5 minutes or less if you want to daytrade. Here are a couple recent examples.
DIA daily with Bollinger band below. There are 4 arrows on recent lows.
#1 9/9 plunge - low and close outside BB
#2 9/14 - less movement but low and close still outside BB
#3 10/13 - low outside BB, close within
#4 10/21 - low and close all within BB
This is what I mean by building bullish divergences. A weak market would have opened on Friday and kept on going down to have another low & close outside the BB.
It is also common to watch for divergence with momentum tools like RSI. Check the daily DXY chart below.
The move powered up to a reading above 70 - 75.71 on the 10/12 high. Anything above 70 means enthusiastic buying. There was an apparent divergence on 10/14 with lower RSI high at 71.83. The next move after that was 3 day consolidation to a sharply rising 10MA which provided the boost for another launch, and RSI is again up there at 74.21. I consider that close enough - a negative divergence pattern would have stopped at 70 again. Also note the power move outside the Bollinger bands twice. The third time is inside, and that is beginning to slow, but with strong move moves and RSI strong my conclusion is - going higher.
INDU Q
I consider this the most threatening chart for USA stock bull market due to the glaring RSI divergence with RSI stopping just under 70 on recent 2016 Q3 high (69.27 to be exact). Compare this to the power move above 70 in 2014-15, which was preceded by a close outside the Q BB in 2013, a sign of strength. Both of those meant market was likely to go higher, and it did. But now we just saw a slightly higher price high above 2015 highs - but not a close high mind you - on textbook RSI divergence and the Q BB leveling out. Even if a big drop is not immanent, we could be in for a long sideways or upside limited period, especially if $USD strength continues.