The system needed a neutral designation, so the joker was created. We will color something yellow when there is any divergence. When we have a divergence, by definition we are looking at something that is not clear.
The chart on the right looks confusing initially if you have never seen or used it. You have all 4 colors going. But when you understand the theory it is very easy to understand, so let’s decode it.
The KP2 buying delta (low to high) was high (1525) and gave us our green marker. The KP3 (previous high to current high) is negative by 701 contracts, giving us the red marker and the yellow divergence. Now you understand the yellow color, who is right? All of these numbers are based on market orders. Are the large number of buyers (KP2) or the sellers from the cumulative delta (KP3) correct?
But the black marker, the KP2 ratio, is based on limit orders and is telling you there is a bearish distribution.
BloodHound is on the chart and is telling us 4 times we had order flow to justify a long trade. But had more than enough information to say something is wrong and pass on the long trade.
Also, because of the large KP2 buying delta, we have trapped buyers and an excellent opportunity for a short trade.