What is Divergence Trading?
Divergence indicates the reverse signal of
Forex Trend or the continuation signal of Forex Trend
What if you could sell at a high point with low risk and buy at low? What if you are already in the buy-in position and can accurately know when to close? What if you can predict that the currency pair will continue to decline and sell for better prices?
This is called divergence trading.
Divergence trading begins by comparing the movement of the price with the movement of the indicator. Indicators can be RSI, MACD, Stochastic, or CCI.
One of the great things about divergence is that you can sell at the peak and buy at the bottom.
If the price makes a high point, the oscillator must also make an elevation point, and if the price is low, the oscillator has to make a low point. If not, this means that the oscillator has divergence.
Divergence trading serves as a signal for reverse and continuation trends and there are two types of divergences: Regular and hidden.
Do you know when the trend reverse occurs in the Forex chart?
– The regular divergence that indicates the trend reverse signal
Regular divergence is a signal of a trend reversal in the Forex chart. The regular divergence has both Bullish and Bearish types.
Regular Bullish Divergence
If the price makes a lower low (LL), but the oscillator makes a higher Lows(HL), it is a regular Bullish Divergence. This usually happens at the end of the downward trend. If the oscillator interferes with the creation of a new low point after the second bottom, this means momentum that the price will rise.
The following is a graph which shows a regular Bullish Divergence.
Regular Bearish Divergence
Now, if the price makes a higher high(HH), but the oscillator is lower high(LH), it is a regular Bearish Divergence. These divergences can be found in upward trends, and if the oscillator makes a lower high(LH), after making the second higher high(HH), this can be expected to reverse or decline in price. The oscillator’s signal can be used to create a starting point of momentum by entering a higher high(HH) or lower low(LL)