The divergence is an interesting concept in Forex technical analysis that seems to work very well. In this article, we will take a closer look at what it is and how you can use it to consistently benefit from any financial market.
What is Divergence?
Divergence in a graph is something that occurs when two or more indicators give conflicting signals by moving in the opposite direction. Accroding to Investopedia, divergence is when the price of an asset is moving in the opposite direction of a technical indicator, such as an oscillator, or is moving contrary to other data.. If you see a situation like that, it might be worthwhile to take a closer look at what happened.
How to use divergence in trading?
To find divergence, you need a chart that shows at least two different variables. To begin, you can adjust the same settings as the example above; price and RSI indicators. Observe the RSI quickly and look for situations where it reverses from an uptrend to a downtrend or vice versa.
Now find the appropriate area on the price chart. Is showing a high level in the market followed by a price that is a little higher? If yes, you have found an interesting situation. If you study some of these settings, you will find that prices will start moving down soon after prices and RSI differences.
Over time, you will feel comfortable enough to find these settings in real-time. Then, you can use of them in your live trading. To get more action, one trick is to move to a lower timeframe. The timeframe may be in 1 hour or even 15 minutes, and observe several markets to find the best situation.
If you prefer a more relaxed experience, go back to your usual timeframes like 4 hours or days, and observe more markets to make sure you find a suitable setting. With experience, finding the best divergence set-up becomes a kind of art and you will intuitively be able to distinguish the good from the bad.
Read more: Pivot Point, A Great Tool for Your Successful Trading
