Forex Trading Accurately With Divergences
Divergences is a term used to describe the visual disagreement between the actual price on price charts and technical indicators (oscillators). Trading divergence provides great opportunities for success. The concept is simple and can be learned by any trader. The ability to see this disagreement requires skills acquired through rigorous market practice and observation.
Divergences refer to disagreements between price charts and indicators (often oscillators like RSI or Stochastic). The disagreement meant here means that the actual indicators and prices of the pair do not reflect the same information about price action in the market. An example is if the price creates a new high level, but the oscillator indicator does not create a new high value or even below the previous high. In this case there is disagreement between the two. Also, this divergence is common in the overbought and oversold areas. If this happens then it can be considered as a signal for reversal.
There is another name hidden divergence. This is also one of the most common trading signals for traders who want to see the direction of pair movement. Almost similar to ordinary divergence, but not necessarily indicate instantaneous price reversal.
Hidden divergences are a bit more complicated to understand, but still depend on disagreements between prices and indicators. As an indication of the continuation of the underlying trend, hidden divergence occurs when the price does not reach new high or low levels but the indicator confirms that it happened. Or more simply an indicator to create a new high or lower low low but the price does not create a new high or low level. Usually occurs during consolidation or correction between trends. This hidden divergence indicates the continuation of an earlier trend.
Divergences help to remind traders when there is a reversal or continuation of market trends. However, it is not advisable to only do divergences, be alert of any movement of the pair remains in the oversold or overbought area for a long time before reversing the position. Looking at historical price charts, it will be clear that divergences are happening. One of the recommended ways to get the best entry level by confirming a reversal with the help of PA trading techniques such as candlestick trading. If the appearance of a candlestick which means a reversal in unison with the appearance of divergence in the overbought or oversold area is a very high forex trading opportunity.