Extended bullish divergence, usually comes in trending market,after strong rise and setting a temporary top, the market corrects lower a bit before the next rise, It usually forms a bullish divergence, but sometimes because the lack of bullish momentum , the pair fails to rise and extends its weakness lower to get the needed momentum to rise again..
In our example we have an extended bullish divergence for EURUSD on the daily chart, after the long rise from 1.2661 towards 1.3710, the pair declined, at 1.3305, It formed a bullish divergence according to our momentum %(R), but with the lack of bullish momentum , the pair failed to rise from 1.3305 and extended lower towards the key support 1.2997 - previous bullish divergence - to get the necessary momentum to rise once again, above 1.2997 the pair has formed another bullish divergence at 1.3017, this scenario is very bullish and suggests rebound to 1.3305 levels, a daily close back above 1.3305 will confirm short term bottoming and open the way to 1.3710, at this point I'd expect rejection below 1.3710 at 1.3593 level to bring another decline towards 1.3300 levels, but If 1.3710 fails to hold, strong bullish momentum will be seen towards 1.3900/1.4000 levels.
Alternatively, If 1.3017/1.2997 fails to hold, the pair will extend its weakness towards 1.2730 where strong rebound is suggested to 1.3000 levels..
The extended bullish divergence is bearish in short term and bullish in long term, sometimes the market continues to extend lower before the next rise, in out case the market fails at 1.3305, now we have strong chance to rise above 1.3017/1.2997, but If this level also fails, the pair will try above 1.2660 levels, keep in mind as long as the daily close is above 1.2661, the long term view is bullish and strong rebound may be seen above 1.2660 towards 1.4000 levels, sustained break below 1.2660 will bring deeper fall towards 1.2000 /1.1600 levels.
The idea behind this post is to watch the pair around the suggested levels 1.2660 /1.2730 /1.2997 /1.3017 /1.3305 /1.3593 /1.3710, whether we wanna ride the trend or anticipate rebound or rejection to long or short...