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LogoutA diffusion index for the stock market does not always function well on Nasdaq-related indices. This is because tiny speculative Nasdaq stocks are more likely than NYSE stocks to go bankrupt or be delisted. As a result, while presently listed Nasdaq stocks may be growing, the cumulative diffusion index continues to be dragged down by all those that have been delisted. As a result, even if the Nasdaq indices are growing, the diffusion index may fall for a long time on specific occasions.
Index of Diffusion Divergence is an ineffective trade indicator. Divergence can continue longer than many traders think, therefore it’s not always a good idea to trade it as soon as it appears. It is preferable to wait for price confirmation of the divergence. If a bullish divergence occurs, for example, don’t purchase right away. Before investing, wait for the stock index to begin increasing.
When using a diffusion index to analyze other types of data, such as BCIs, keep in mind that not all data points in the group are equal insignificance. A fast increasing indication is given only a one-point value, while a middling climb is likewise given a one-point value. The data may be oversimplified by the diffusion index. As a result, looking at the individual indicators and what they’re saying, as well as the diffusion index, is still a smart idea.