Divergence Forex Trading Ultimate Guide | Litefinance (2024)

Divergences in Forex trading are quite common signals of technical analysis. These are basic early forex signals indicating the trend reversal and filter false signals. This article is a detailed overview of convergences and divergences.

Add the article to bookmarks and read it every time you need to revise the theory.

What is a divergence in trading: Definition & Meaning

Forex divergence is defined as a case when the price of an asset is moving in the opposite direction of a technical indicator, such as an oscillator.

For example, the asset price is moving up, but the oscillator line is moving in the opposite direction. The opposite situation is also divergence forex.

Let us explore an example of Forex divergence on the EURUSD chart.

You see from the chart that the next price high, marked with the blue line, is higher than the previous high. The MACD serves here as a forex divergence indicator. However, the MACD indicator signals a down move. You see that the histogram of the forex divergence indicator is getting close to zero. The signal is accurate as the price reverses down. Running a little ahead, I will say that this example is a simple, bearish divergence. It is also called negative. Negative divergences occur when the underlying security moves to a new high, but the indicator fails to record a new high and forms a lower high.

Trading signals of Divergences

Let us explore all possible types of divergence signals and analyze their examples in the charts.

Although divergence is a simple signal, many people are confused with divergence trading forex. It happens because there are many types and classifications of divergences.

In general, divergence come into the following types:

1. Regular (simple) / hidden / extended;
2. bullish vs bearish;
3. negative / positive;
4. direct / reverse ;
5. divergence / convergence.

There are five subtypes! Such diversity can be confusing even for professionals. In fact, trading divergence is easier than it seems!

Double Top & Double Bottom

To understand all types of forex divergences, we should first learn how to identify a divergence in the market. Irrespective of the divergence type, all signals are based on three principles:

1. The primary feature is when a double top or double bottom pattern appears in the price chart.

Differently put, there should be two manifested highs or lows in the chart.

Important! The extremes must appear in the trending market.

There is no double top in the above chart. The highs are not explicit. Therefore, there is no divergence signal.

2. Any divergence is discovered only according to the highs or lows in the price chart and on the divergence indicator.

The above chart displays the correct divergence interpretation. The line connects the local highs of the double top of the price and the indicator.

The above chart is an example of the wrong reading of divergence forex. The price highs are compared with the indicator lows in the wrong way.

3. Price highs and the indicator highs should correspond to each other.

The above chart displays the correct analysis of divergence. The indicator highs coincide with the price highs at the double top.

The above chart displays a situation when the price highs and the highs of the indicator do not correspond to each other in time. It is a bad error.

Types of divergences forex explained

So, you can easily spot a divergence in the price chart. Let us now explore different types of forex trading divergences. Basically, there are three major types of divergence. They are regular divergence (also, classical or normal), hidden divergence, and extended (reverse) divergence.

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The above table outlines basic divergences. You see that each divergence type subdivides into bullish and bearish (negative and positive). Common, regular divergences signal the trend reversal. Other types of divergence (hidden and extended) signal the trend continuation, they are also called reverse divergence. Many confuse convergence and divergence. Let us clarify these concepts. Diverge means to deviate. In trading terms, it means any deviation in the price trend and indicator.

Convergence is the opposite of divergence. Convergence derives from the Latin word 'convergo' – get close. Therefore, convergence is a type of divergence, when the price trend and the indicator line are meeting.

Regular divergence

Regular divergence is a strong reversal signal.

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To spot bullish divergence, you need to analyze the price lows and the lows recorded by the indicator. The price chart should hit a lower low, but the indicator should signal a higher low (the left side of the table).

Blue lines in the chart mark the regular bullish convergence. The price hits a lower low forming a double bottom pattern, but the MACD paints higher lows. In trading, such regular divergence signals a soon reversal of the bearish trend.

To find out a regular divergence bearish, you should analyze the price highs and the highs painted by the indicator. The price should be making higher highs, but the highs on the indicator are getting lower (the right side of the table). The regular bearish divergence signals that the bull trend should turn down soon, so one could enter short trades.

The above chart displays the regular bearish divergence. The security price hits a fresh high, but the MACD histogram fails to break through the previous highs. Therefore, the price trend should soon turn down.

Hidden Divergence forex: Convergence

Hidden divergence forex is the opposite of the regular divergence; it suggests the trend continuation.

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A hidden bullish divergence occurs when the price hits higher lows while the indicator forms lower lows. Hidden divergence bullish signal appears in an uptrend; it suggests trend continuation. The left side of the above table displays an example of a hidden divergence.

The price lows, connected with a blue line above, are getting higher. The MACD lows are getting lower. Therefore, there is a hidden bullish divergence that means the trend continuation.

To spot the hidden divergence bearish, we shall analyze the price highs. The price, following a downtrend, is making lower highs, while the MACD is hitting higher highs. A hidden bearish divergence appears in a downtrend; it means that the expected reversal is false, and the trend is likely to continue. It is displayed on the rightof the reference table.

The above chart shows a bearish hidden divergence. The price highs are getting lower, while the MACD highs are getting higher. So, the trend hasn’t turned up. The downtrend continues.

Extended Divergences

Extended divergence forex is similar to the hidden divergence. However, the extended divergence often fails to observe the basic rules as it frequently occurs in sideways trends. It doesn’t feature clear price high or lows. Many traders do not consider the extended divergence as a trading signal, suggesting it be a false one.

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Extended bullish divergence is accompanied by rising lows. In the bearish divergence, the highs are getting lower. Let us see the examples in the table.

The above figure displays the extended bullish divergence on the MACD indicator. The price lows are roughly equal (slight deviations are acceptable). However, the MACD second low is higher than the first one. This divergence signals the uptrend continuation.

The bearish divergence is also identified based on the indicator data; the MACD paints a lower high. It means that the price will continue falling, so one could enter a short position.

The EURUSD chart above displays the extended bearish divergence MACD, which suggests the downtrend continues. There could be slight deviations, but the highs are roughly equal in the first and second charts. The signal appears in the sideways trend, which is a typical feature of the extended divergence.

Common mistakes when trading with divergences

Beginner traders often come across false information about divergences on the Internet. Below I will discuss the most common mistakes when trading with divergences:

1. On many Forex trading websites, I noticed that authors wrongly identify divergence. They suggest that if the indicator is moving up, the line drawn across the indicator peaks is showing real highs. Based on this, they connect the highs in the price chart with the line. Similarly, in the case of the downtrend, when the indicator highs are below the zero line, they connect the price lows in the chart. In other words, they believe that if the indicator shows a decrease, they need to connect the lows; and if it shows an increase, then they connect the highs.

• Remember! You should always start with the price chart when trading divergence. First, you find the price extremes in the chart, ideally, a double top or double bottom. Next, you explore the indicator data to find a divergence.

2. The second most common error is when traders identify divergence simply by connecting adjacent peaks of the indicator bars. But they do not monitor whether these peaks occur within the same trend.

• Important! To spot real divergence, you need to compare only the price extremes within the same trend.

3. Another example of false divergence, when traders think that if in the indicator chart, there is an upward slope, and in the price chart, there is a downward slope; this is convergence. It is a mistake!

• Remember! Divergence is determined by the divergence/convergence of the highs or lows of the price and the indicator, not by the direction of their lines.

4. Many traders also make a mistake when they analyze the divergence of the price highs and the indicator lows.

5. If you discover a divergence, make sure that the indicator highs and the price high occur at the same time. You should not analyze the price extremes that occur at different times!

6. Divergence, being an early indication, features quite many false signals. It is a big mistake to trade only according to divergences!

7. Do not consider the divergence that has been followed by the price moves. They must have worked out, being false ones. You shouldn’t trade on past divergences.

8. Another common mistake is thinking that divergence is only a reversal signal. Depending on the divergence type, it may signal both a trend reversal and continuation.

If you have been reading this article from the beginning, you can already discover the divergence signal. Open your trading terminal right now and try to find divergences yourself. What type of divergence have you found? What does it indicate? Then, go back to the list of mistakes and make sure you avoid them. The practice is the best way to remember theory

Divergence and confirmation

It should be stressed that divergence means that the price chart and the indicator are going in opposite directions. Divergence can indicate a trend reversal or a trend continuation, depending on its type. The main feature of divergence is that it is a leading signal. Its confirmation can be obtained after the fact, with the corresponding market movement. Generally, any indicator signal, price action, chart, or wave pattern confirming the truth of a price movement or leading divergence signals can be considered a confirmation.

Divergence and reversal

A reversal in trading means that the price movement changes its direction. In technical analysis, reversals are important, as traders can profit from a new trend. A reversal can occur after a divergence when the indicator signals a change in market sentiment. Also, a reversal can occur after reaching a key level or when the price goes beyond the trend line.

It should be stressed that divergence is a leading signal, while confirmation and reversal reflect the current market state.

Trading Divergences signals

Well, we have studied the theory. Now let see practical trading divergence signals in different financial markets.

Regular Bearish Divergence

A regular bearish divergence forms at an expected end of a trend. Traders often describe such situations as the trend is exhausting.

The above chart displays a bearish divergence. It is marked with blue lines. So, you see that the trend should reverse soon, but we should have a confirming signal. To define the entry point, we shall use the signal when the trendline (dark-green line) is broken. When the reversal bar closes below the trend, we enter a short trade. I marked the entry point with blue.

We set a stop-loss a little higher than the next local high (red line). To fix the profit, we shall use a take-profit that is twice as big as the stop loss (green line). The price goes down, and we take the profit.

Regular Bullish Divergence

Regular bullish divergence is a perfect reversal signal. Just like with the bearish divergence, we should use the trendline breakout as an entry signal.

The above chart displays a perfect bullish divergence signal. The price is in the bear trend. Sometime later, there are two consecutive regular bullish divergences. I marked them with different colors. I will explain this phenomenon later. Now, we should just take this fact into account. Now, we just consider it just like a strong reversal signal.

When you use trendline to detail entry points, you should be able to draw it correctly. The downward trendline starts from the first trend high to the last local highest high in our example. In the previous example, with the bullish trend, the approach was the same, but the trendline was drawn across the lows.

Let us go back to our example. After the first bar closes above the trendline, we enter a long. I marked it with the blue horizontal level on the chart.

Like in the previous example, we set a stop loss a little lower than the last local low. The take profit is twice as big as the stop loss.

I should note that taking a profit that is twice as long as the stop loss is not always efficient. In our case, we have to wait for a profitable trade for a month. You can exit the trade based on the combination of the divergence signal with other indicators and trading strategies. I will deal with this in detail a little later.

Extended Bearish Divergence

Unlike the previous two divergence types, this signal means the trend continuation. You can use extended bearish divergence to enter in the trend, following a failed reversal.

The above chart displays a common case of extended divergence. There is extended bearish divergence, where the indicator hits higher highs while the price highs are getting lower (marked with blue lines). This signal should be followed by a false trend reversal.

To determine the entry point, we use the moving averages MACD, namely their breaking the zero level downside. Usually, when the MACD moving averages go into the positive zone, it is seen as a trend reversal signal. However, taking into account hidden bearish divergence, we expect a false breakout of this level. So, when the indicator goes back into the negative zone, we enter a short trade. A stop loss is set a little higher than the first high of the convergence formed (red line). It is clear from the above chart that the take profit, which is two times more than the stop loss, is hit by the price and exits our trade with the profit.

Extended bullish divergence

This signal mirrors the previous one. It also suggests the trend, this time uptrend, will continue.

It is clear from the above chart that the MACD histogram forms lower lows, while the price chart indicates the uptrend. I marked the extended bullish divergence with the blue lines.

Like in the previous case, we expect a false reversal of the trend. The MACD moving average (do not confuse with the signal line!) goes below the zero level for a moment and goes back. This is a buy signal! I marked it with the blue level on the currency pair price chart. We set the stop loss like in the case with the previous trade; only it is below the price low. The target, double distance of the stop loss, is reached quite soon.

False divergence signal

It is quite a common situation in trading divergence signals. The false signal of divergence is when the convergence or divergence of the lines doesn’t result in the trend continuation or reversal as expected.

You can reduce the risk of mistakes in three ways:

• Follow money management rules.
• Always set stop losses in each trade.
• Filter signals (use supplementary indicators).

Let explore the third point in more detail. To filter out false signals, you can use supplementary technical tools, price action patterns, graphic chart patterns. Let us study how to filter false signals using Bollinger bands.

The above figure shows an example of a false divergence between the price chart and the MACD histogram. Following the divergence signal, the price starts moving down, and even the MACD moving averages foes into the negative zone. However, the price fails to consolidate below Bollinger bands, which means the price is likely to be consolidating rather than trending. The Bollinger bands get close in the zone of the red circle, where the price goes into the opposite zone. It cancels the bearish reversal signal.

I explained how to set up the Bollinger bands indicator and trade with it on Forex in the article. To filter false signals, you can use other trend indicators. Any additional signals delivered by trend indicators are stronger than the divergence signals.

Steps of how to trade divergence in forex

So, having learned the theory and the practical application of divergence, we can make up a step-by-step guide to trading divergence in forex.

How to avoid early entering when trading divergences

Make sure you follow these steps:

1. Define the trend direction currently ongoing in the price chart. Draw the trendline.
2. Find out two consecutive highs/lows to spot the divergence.
3. Attach the MACD histogram to the price chart and define the highs/lows on the indicator corresponding to the price extremes on the chart.
4. If you find out the divergence between the indicator and the asset price, define the signal direction.
5. Next, determine the entry point. I offer to base on the bar that closes beyond the trendline to enter a trade.
6. The basic divergence strategy suggests setting a stop loss at a distance from the highest high/lowest low.
7. The basic scenario implies setting a take profit at a distance twice as long as that of the stop loss.

This is a basic strategy you can base on in trading forex. It could be quite a good guide for newbies. Try yourself in trading divergence. Enter the terminal without even registration in a couple of clicks, spot the divergence, and build your trading strategy.

Stop Loss and Take Profit while trading divergence

Regardless of which trading method you use, you should always apply stop loss and take profit. You can’t monitor your trading chart for 24 hours a day. At the right time, only these two tools will save your deposit and help you fix your profit. If trade divergence signals, you set a stop loss above the highest high for a bearish trend and below the lowest low for a bullish trend.

The above figure displays an example of a reasonable stop loss, marked with the red line. It is a bearish divergence, so the stop loss is set a little higher than the local high.

In the case of the inverse divergence, you set a stop loss beyond the local price extreme that is within the divergence pattern.

Trading divergence suggests following the trend. So, you can exit the trade according to any reversal signal. I recommend beginner traders to set the take profit at a distance twice as long as that of the stop loss; this is a simple and winning trading strategy.

Divergence indicators

Traders most often use oscillators divergence in trading. The best divergence indicators mt4 are MACD, RSI, stochastic, OA. They are user-friendly and simple but provide quite accurate trading signals. You can learn more about stochastic oscillator trading forex in the article Stochastic Oscillator: guide for using indicator in Forex trading.

Other popular forex divergence indicators are:

• Chaikin Oscillator;
• DeMarker;
• Momentum;
• Volume oscillator.

Why these indicators?

Each forex divergence indicator offered above is unique and has its own features and accuracy degree suitable for particular financial markets.

I don’t think you should limit yourself to the above list. Divergence principles will work with any technical indicator. So, you can use any oscillator that suits you best.

MACD divergence

In the previous examples, I have already used the MACD divergence indicator. MACD stands for moving averages convergence divergence. The MACD indicator is composed of three elements:

• MACD line (primary line) indicates the difference between the slow Exponential Moving Average (EMA) and the fast EMA. It marks the trend direction.
• MACD signal line- EMA of the MACD line.
• MACD histogram defines the difference between the primary and the signal lines (trend strength).

To find out the divergence, you can use the histogram, as I described above. Or you can use the primary MACD line. I will explain the second way below.

Diagonal lines in the chart above highlight the MACD bullish divergence. Note that we shall define bullish and bearish divergence MACD according to extreme points of the MACD line (blue line in the chart), not the signal line. I marked the entry point with a blue level.

RSI divergence

The RSI indicator relative strength index identifies the overbought or oversold zones, themselves as entry and exit signals. Another strong trading signal is the RSI divergence indicator. Like in the previous examples, there can be bearish and bullish divergence RSI.

Blue lines mark the divergence between price highs and RSI highs. So, there is a bearish divergence RSI. I enter a trade when the RSI line goes outside the overbought zone (blue horizontal line in the chart). I exit a trade when the RSI oversold signal is sent. I marked the point with the green circle in the chart above. If you want to learn more about the RSI indicator, you should read the article about the Relative Strength Index – RSI indicator.

Stochastic hidden divergence indicator

Stochastic is another popular oscillator used in divergence trading. It is composed of two lines that often interact with each other. Like the RSI, a stochastic divergence indicator finds out the overbought or oversold state of the market. Stochastic forex trading strategy divergence suggests spotting convergences and divergences between the price bars and the main indicator line.

Blue diagonal lines mark a regular bearish divergence. An additional entry signal is delivered when the indicator line goes outside the overbought zone. The entry level is marked with the blue horizontal line.

We shall take the profit (green line) when the indicator goes into the oversold zone after the meeting of %K and %D stochastics. This signal is marked with the green circle in the above chart.

The hidden stochastic oscillator divergence is determined according to the same rule as in the cases with the MACD and RSI.

The above chart shows an example of the bullish divergence stochastic. You see that the same rules work as for the MACD. The second low of the indicator is lower than the first one in an uptrend. I enter a trade when the confirming green bar closes immediately after the intersection of the stochastics at the second top. I set a stop loss below the lowest low in the divergence. I take profit according to the stochastic rules at the second retest of the overbought zone. You can also exit the buy trade when the price breaks through the trendline or just set a take profit at a distance twice as long as that of the stop loss.

Important! The stochastic oscillator is a very useful tool for technical analysis. A detailed guide to stochastic trading is in the article devoted to the Stochastic Oscillator.

Awesome oscillator divergence

Unlike the oscillators covered above, the Awesome Oscillator divergence indicator looks like a histogram, not like a curved line. The trading strategy with the Awesome Oscillator is similar to that of the MACD histogram.

The above chart displays the EURUSD sell trade entered according to the bearish divergence. Next, the sell trade is exited with a profit, and a purchase is entered after the regular bullish divergence appears. The entry levels for both a short and a long are marked with a blue horizontal line. At the entry points, the Awesome Oscillator breaks through the zero line. I marked the entries with green circles.

An important feature of the AO is that the signal is sent when the indicator crosses the zero level. When the AO breaks through the zero line, the local or the global trend should reverse. So, when the price extremes are separated by such crossing cannot be with the same signal pattern. To avoid such an error, you should check the same divergence on a longer timeframe. If the signal is not broken there, you can use it in trading.

Bollinger Bands divergence indicator

I have already mentioned that the Bollinger bands are well combined with the divergence signal. Bollinger Bands is a trend indicator, so we need an oscillator to define a divergence. I will take the MACD as an example.

If you are not yet familiar with the Bollinger Bands indicator, I strongly advise you to read the article Bollinger Bands Indicator. I described the double Bollinger band trading strategy. In short, it suggests attaching two Bollinger Bands indicators to the price chart. One indicator is with coefficient 1; another is with coefficient 2. Finally, the chart is divided into three zones, where the central green band is a neutral area, and the red bands upside and downside are the buyer and the seller zones.

The common strategy of double Bollinger Band divergence suggests that if a reversal followed the upward trend and the price entered the bottom red band, there should start a bear trend. In the opposite situation, when the price enters the top red band, there should start a bullish trend.

It is clear from the above chart that the strategy also delivers false signals. So, divergences here are a good filter. In early May, the EURUSD pair enters the upper red zone and breaks it through. However, the MACD paints lower highs. This is an example of regular divergence. Besides, the price diverges from both the MACD and the MACD histogram as well, which is an additional confirmation. If you discover such as signal moving average convergence divergence macd, the trend must soon reverse.

To confirm the short entry, we don’t need to wait until the price goes into the lower red band. We enter a trend earlier when the candlestick closes in the green zone and the MACD moving averages while the histogram goes into the negative area. We put a stop loss a little higher than the most recent local high. We should exit the trade when there is an opposite divergence signal of the trend reversal.

It is clear from the chart that the signal is delivered in January. We exit the short trade and enter a long one. So, you see that the combination of the MACD and Bollinger Bands makes up a perfect trading strategy. Besides, due to the special design of the MACD, the indicator gives a divergence signal both on the histogram and using moving averages.

You see from the chart that we avoid false signals due to the double divergence check. In our case, the MACD histogram shows the bullish divergence, but the moving averages do not confirm this signal, so the signal is false.

On-Balance Volume (OBV)

The On Balance Volume Indicator (OBV) refers to indicators of trading volumes. It is based on the idea that trading volume is the determining factor in price movement.

The OBV measures the change in trading volume and adds or subtracts it from the previous value. The trading volume is added to the previous value if the price closes higher than the previous day. If the price closes lower than the previous day, it is subtracted. Thus, the OBV indicator shows the relative strength of bulls and bears in the market.

Divergence on the chart may occur if the direction of price movement and OBV are different. When the price rises and the OBV falls, this may indicate a possible price reversal down in the near future. If the price is falling and the OBV is rising, the price will likely turn up soon.

Best divergence trading strategy

Using the combination of MACD and Bollinger Bands as an example, we see that trend lines and other oscillators can be used to filter the divergence signal. In addition to MACD, we have already explored Stochastic, AO, and RSI. These indicators are effective at handling the divergence signal. But perhaps they will work even better together! I propose to put together a comprehensive divergence day trading strategy and test it in practice.

I don’t want the divergence strategy too complicated, so I will employ the following tools:

• Stochastic – 21, 7, 7 with the EMA to smooth
• RSI – period 14
• Double Bollinger Bands

Stochastic and RSI, in addition to confirming divergences, will also signal overbought and oversold conditions. For the stochastic, I took the recommended settings for the daily timeframe from the article here. I used the default settings for the Relative Strength Index.

Bollinger Bands will serve as a trend indicator. A stop loss is set a little higher than the high or a little lower than the low. We will take the profit when the indicator goes into the overbought/oversold zone.

Let us test the divergence trading strategy in the same case where we traded with the MACD.

1. There is a clear divergence between the price and the stochastic. The price is now in the upper Bollinger band, above the moving average, so the trend is bullish. Based on this signal, there is a regular bearish divergence.

2. The price breaks out the upper Bollinger band and goes back into the green zone. RSI touches the overbought zone and goes down again. These signals confirm the trend reversal, so we detail the entry point.

3. We enter the short at the next bar when the stochastic shows the bearish crossing of the %K and %D lines (blue circle in the chart).

4. The stochastic goes up into the oversold zone. RSI is in the balance zone; it doesn’t confirm the oversold condition. Hence, a false reversal or consolidation can be expected, but not a trend reversal (marked with blue circles). We keep the short open.

5. Eventually, there is a bullish correction. There is no divergence. Oscillators are in the balance zone. We hold the short.

6. In late October, both oscillators entered the oversold zone. When the price rolls back, and the first bar closes in the green zone, we exit the short and take the profit.

As a result, the reversal signal turned out to be false, and the price continues falling. However, there is no entry signal. Next, there is a regular positive divergence, so we enter a long. The signal to exit the trade according to the oversold zones appears only in June (green circles).

As a result of such an easy test, we can conclude that this divergence strategy is entirely accurate. Because of the early exit, however, we could miss the rest of the strong movement. In fact, there is no point in trying to pick up each price movement. If a trading strategy yields stable profitability without deep drawdowns, it already could be used.

Try this algorithm to develop a divergence day trading strategy. Test the divergence strategy yourselves without any risks and the need to register in the LiteFinance terminal. You can experiment with setting and use different oscillators, the AO, for example.

Divergence accumulation principle

When working with indicators such as the AO or MACD, you might have noticed more than once that after giving a divergence signal, the indicator does not work it out, but on the contrary, it forms one more high or low while not crossing the 0 line. And we see not two peaks, but three or more. The most common opinion is that it's just an error in the testimony and leaves no other option than to close the position by stop loss.

But if we look at the further development of the situation on the market, we will see that the signal is not canceled but simply transferred to another time and market situation. In other words, the signal accumulates, and a double or triple signal appears. Why does it happen? This is easy - we estimate the divergence not by the whole current trend, but only by its part. In other words, our initial signal means a local trend change within the global scope. This local trend change is called a correction. So, the indicator shows the presence of divergence at the moment of the beginning of the formation of the correction, and after the correction, when the main trend continued, the indicator quickly realized its mistake and started following the price without changing the global trend (not going beyond the 0 line). When this trend is over, the indicator gives a divergence signal again, which is now located, as though inside the previous signal. And now, this is a single signal. This may continue until the global trend changes.

The above chart shows our trade. You see that before a reversal signal, there was a divergence on the MACD histogram (marked with a circle). I must tell that the MACD moving averages do not confirm this signal. However, such multiple convergence divergence only increases the total chance that the divergence would work out.

Summary and recommendations on divergence trading

Forex divergence is one of the basic early signals. Divergence is easy to spot in any market and on any trading instrument. Divergence signals are universal and apply to the market both as a basic strategy element and an additional filter. Any trader employing technical analysis should know and use divergence signals.

I could sum up the main conclusions and recommendations on divergence trading as follows:

1. Divergence signals alone are not enough to enter trades. Confirm the divergence with technical indicators.
2. If you are confused with different types of divergence, learn the major type – regular divergence thoroughly. The regular divergence helps to identify the trend reversal and enter a trade at the top or bottom of the trend.
3. Be sure to spot the divergence correctly. Check yourself with a checklist - see the section devoted to the common mistakes when trading divergence.
4. Consider multiple / accumulating signals when analyzing divergences.
5. The presence of divergences in longer timeframes enhances the meaning of divergence in shorter time frames.
6. Forex divergence convergence signal is similar in all platforms. You can trade divergence in any market!
7. There is no universal indicator to work with the divergence! Experiment forex divergence signals, try different combinations of technical indicators. However, do not take unjustified risks. Always test any strategy on a demo account.

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Price chart of EURUSD in real time mode

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