Divergences Trading

Supposing you were already in a long position and you could know ahead of time the perfect position to exit rather than watching your unrealized earnings, disappear before your eyes for the reason that your trade reverses direction.

Say you have confidence that a currency pair will persist to drop, however,  would like to short at a good price or a less uncertain access. There is a way you could do that and it is called divergence trading.

In a few words, divergence can be seen by comparing price action and the movement of an indicator. You can use RSI, MACD, CCI, Stochastic and few more.  It does not really matter what indicator you use.  

The good thing about divergences is that you can use them as a leading indicator, and after some training it’s not too hard to spot.

Once traded properly, you can be steadily profitable with divergences. The great  thing with divergences is that you are typically purchasing near the bottom or selling near the top. This makes the danger on your trades are very little relative to your possible return.

Trading Divergences

Just keep in mind “higher highs” and “lower lows”.

Price and drive normally change hand in hand like Batman and Robin, I am sure you get the  point.

If the price is making higher highs, the oscillator should also be making higher highs. If price is making lower lows, the oscillator should also be making lower lows.

And If they are NOT, that means the Price and the Oscillator are diverging from each other. And that is the reason why it’s called “divergence.”

Divergence trading is a remarkable tool to have in your toolbox for the reason that divergences indication to you that something fishy is going on and that you should pay closer attention.

Two Kinds Of Divergence

1.    Regular

2.    Hidden

Using divergence trading can be very useful in identifying a weakening trend or reversal in momentum. Sometimes you can even use it as an indicator for a trend to carry on!

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