Woodies CCI Reverse Divergence (rev diver):

The Reverse Divergence (Rev Diver) pattern is very simple. Do not let if confuse you. However, many people find it hard to understand and even harder to spot. This shows us two things. One, the documents and explanations are too hard to understand and just possibly confuse the matter. Two, and more interesting, is that it may show us that by bringing in your prior ‘knowledge’ into Woodies CCI system will give you headaches when trying to understand it.

This pattern was named using words that remind you of things you have tried to learn before. Maybe that is the reason why people find it so hard to spot. Forget the name and do not let it conjure up your past knowledge. None of that will help you and is absolutely not needed any longer. So forget everything you think you know about it. Do not question the pattern or why it works at this stage. Just learn to spot its ‘look’. It’s a very simple pattern I assure you.

You do not need prices to trade the Rev Diver pattern. You do not need to verify that it is a true reverse divergence pattern against price before you enter the pattern. We do not use prices to trade Woodies CCI system. Woodie has done many years of research and live trials on this pattern. He has determined that it truly is reverse divergence when compared to price over 95% of the time. This is why we as traders do not have to verify it against prices. We just react and take the trade. Besides, lets say it turns out not to be a true rev diver pattern when compared to price bars. The CCI will warn us anyways by showing us one of the Woodies CCI exit signals.

Reverse divergence CCI pattern is a trend continuation pattern. We spot it by looking for two inside bumps moving closer to the zero-line. By the word bumps we mean the CCI movements up and down. Some call these peaks and valleys. We say inside bumps to represent the bumps that are within the histogram or in other words bumps that are closer to the zero-line. We never use outside bumps to spot Rev Diver patterns.

The following two rules are all you need to spot the Rev Diver pattern:

Rev Diver long – CCI above zero-line for 6 or more bars, two lower inside bumps

Rev Diver short – CCI above below line for 6 or more bars, two higher inside bumps

The Reverse Divergence Trade is a trend trade. New students of Woodies CCI should be taking this type of trade.

You can combine the Rev Diver trade with a zero-line reject (ZLR) trade or the trend line break (TLB) trade to add strength to the signal for a greater probability of success. You most always have a ZLR pattern along with a Rev Diver pattern. In fact you usually have two ZLR patterns that make up a Rev Diver since both inside bumps usually occur within the +/- 100 CCI area. The inside bumps actually represents the CCI ZLR pattern. Look at the charts closely and you will see both of them on each chart.


Chart 1 Chart 2 Chart 3

3 Charts Above – Rev diver Pattern.

The yellow lines show the CCI pattern. The two short yellow lines show the Reverse Divergence Trade pattern. The longer yellow line shows the Trend Line Break pattern that usually accompanies this trade. The single white lines show where the entry would be and the double white lines show where the exit would be.

Each chart shows a short yellow line where each inside bump can be see within the pattern. Notice that the inside bumps are closer to the zero-line as they move across the chart. Two of the inside bumps shown actually go over the zero-line. In chart 2 you can see one inside bump goes over the zero-line a little bit.

In chart 3 one inside bump goes down under the zero-line a great deal. Technically this turned into an outside bump since it went down below the zero-line.. Don’t let this confuses you. It is still a rev diver pattern but you may want to avoid ones that do this. You could instead take this as a ZLR trade on the first bar that flipped up since it only went down to –100. Again, all of these patterns melt together in some fashion all the time. Don’t worry about it. You will be fine. Just keep on reading.

However, as you know by now, we look for the more perfect CCI patterns to trade and the rev diver in chart 3 might not be a trade to take since it does go over the zero-line quite a bit and for 3+ bars as well. It is interesting enough to note that the trade was really strong and went quite far upward anyways. In fact, you could just ignore the rev diver pattern on chart 3 and take it as a simple TLB trade. I hope you are seeing by now that all of Woodies CCI patterns mix together or come one right after the next.

Notice that there is a zero-line reject (ZLR) pattern just before each of these rev diver entries on all 3 charts. This is not a coincidence. Lots of CCI patterns run together. Some will add to the potential for success and some will signal you to exit immediately because they are setting up a CCI trade signal against your current position. Don’t let this confuse it. It’s normal to see multiple Woodies CCI patterns combined together.

All 3 charts are showing the trend line break (TLB) pattern drawn as well. Most people use a rev diver pattern along with a TLB pattern as a signal for more confirmation to enter the trade. You can clearly see this in charts 2 and 3 where the entry is shown after the TLB is broken However, you could enter the trade right after the second ZLR CCI turn up/down that forms the complete rev diver pattern. This entry by itself would be a rev diver trade with the added confirmation of a TLB.

The first chart shows two exits using the double white lines. Again, the first contract or set of contracts would be exited at the first set of double lines. The remainder of the position would be set to b/e+1 and you would wait for the next exit signal.

Notice that the 3rd chart shows a lower inside bump that actually goes onto the other side of the zero-line. This is a nuance and does happen. That is fine. Important to point out is that this is actually a valid zero-line reject long signal since it doesn’t go past the CCI –100 area. This one goes a bit further so it could be taken with caution.

The exit signals are the same as in any other trade. Go review the section on how to enter and exit trades.

It is very important to remember that when you take one of these trades it does not mean you are supposed to stay in it forever. Always follow Woodies CCI exit signals.