Forex School

Lesson: 22 – Trading Divergences

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Trading on the differences

In this chapter, we will not see a new indicator. The divergence is a remarkable and interpretable behavior on any indicator.

What is a conflict?

The name is pretty self explanatory, a divergence is visible as soon as the indicator in question moves in the opposite direction to the course.Although giving a good indication, the differences do not give direct input signals. It is very often necessary to complete the signal by another method for determining an interesting entry.

The appearance of a divergence tells us of weakening trend in progress. Nevertheless, it is very possible that the reversal does not take effect immediately. This is why trader is avoided only with differences.There are two types of divergences, divergences direct and hidden differences. We’ll see this now.

Direct bullish divergence

A bullish divergence occurs when prices lower mark more low and the lowest mark indicator of increasingly high. This gives an indication of breathlessness of the downtrend and potentially signals a bullish reversal. Here is an example with the RSI (14)


Note that the lower the prices are becoming lower as the lowest RSI are becoming higher, it follows a bullish reversal.Direct bearish divergence. Here we identify a bearish divergence when prices fall the highest increasingly high and the indicator shows the highest ever lower.Let’s see an example with the stochastic:


Again during each break resistance when the% K continues to decrease, therefore the result is a beautiful downward acceleration. Hidden divergence Unlike the direct differences, hidden differences indicate a continuation of the trend. Less obvious to the eye (hence their name) they are not less effective. Bullish divergence hidden.

This divergence is characterized by low growing high on prices, and lower growing low on the indicator. It gives an indication of bullish continuation.In short we must remember that the interpretation of the indicator is: “He gave everything to lower but the courses resist” Here’s an example to illustrate this:


Here, this performance confirms our words. Indeed, during a beautiful fall uptrend while the RSI mark down lower than the previous, the courts have therefore rebounded upwards.Bearish divergence hiddenWe can find a bearish divergence when the current mark of the highest growing low while the indicator marks the highest ever higher. We will then have an indication of bearish continuation.

Here is another example:


Here, we set things in order not to draw hasty conclusions. First we note that the course will steer clear uptrend, then it is possible to draw a trend line with two points. Furthermore, we would like to enter the rebound in contact with the oblique support. Nevertheless, we are not sure what the point of entry. However we note that the RSI divergence marks a hidden sign that courses keep a good upside potential. So we have a good chance that the current bounce off the support and this is what happens;)

Method for Forex trader divergences
In conclusion of this course, we will retain that differences are a powerful tool. But however powerful he remains incomplete. It would be illusory to take positions solely on the appearance of differences. In short we must know how to use it wisely, that is, as information on the current trend. Trader only differences would be trading chart patterns anticipating breaks …


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Saimon Akash

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