Divergence analysis is however very tricky, because it implies the combination of different concepts:

1. Effective Volume by itself is not a good measure.
   What we need is to rate the evolution of the proportion of Effective Volume to the total volume exchanged, and compare that to price changes.
   I call this the Effective Ratio/Price Divergence Analysis.
2. The Divergence Analysis model needs to consider price moves that are not generated by Effective Volume.
   This is the "price gap" phenomenon.
3. We need to note that each stock has a different set of shareholders.
   This means that Divergence Analysis does not give the same signals from stock A as it does from stock B.
   Divergence Analysis must therefore include the past analysis of the active shareholders' behavior.
   I call this the "fingerprint" analysis.
   Without the "fingerprint" analysis, the divergence model will give false buy/sell signals.
4. We also must note that volume and price data are very different mathematical "animals".
   What separates them most is their respective volatility.
   The influence of volatility must also be integrated in the Divergence Analysis model.

Divergence Analysis is complex because of the concepts involved. I showed it to Dr. Alexander Elder, who told me that the tool was too complex for a non-professional trader to follow over a sustainable period of time. This is the main reason why I will not write more about this tool.

This tool must be used together with the Active Boundaries and the Effective Volume flow in a complete automatic trading method.
This method requires us:

• to initialize the calculation for at least 1,000 stocks, at a human time of about 15 minutes per stock
• to set-up an array of computers working in parallel and feeding a trading desk

Or

• to initialize the calculation for at least 1,000 stocks, at a human time of about 15 minutes per stock
• to train a group of traders to use the method
• to divide the stock analysis work between these traders, who will then share their trading signals (such as the one generated on the figure 6)

Fig. 6: Ranked Trading Signals