Many people use traditional ways to trade in the forex market. However, divergence trading helps new traders to get a broader perspective of the forex market. It is not a new trading concept for experienced traders. In fact, divergence trading is a price action measured in regards to a forex indicator.
The regular indicators used to detect the divergence are MACD (Moving Average Convergence Divergence), RSI (Relative Strength Index), stochastic, and CCI (Commodity Channel Index). Pricing action can be used as a leading indicator in divergence trading.
You need to analyze the trends in a proper manner without hurrying up when a good divergence is visible during a short span of time. You need to be sure that the divergence has actually kicked in before pulling the trigger. Avoid entering a trade when there is some fundamental announcement that can bring major changes in prices. There are forex signals like resistance or support levels or candle patterns. Practice can make you a master in forex trading.
You can then earn consistently. The risks are relatively smaller than the potential rewards. The risk is less when you sell near the top or bottom of a trend. The indicators diverge from each other indicating the reverse that is possible in the forex market when there are greater highs and lower lows. This technique works better on higher timeframe like method like H4.
The two types of divergence trading are regular trading and hidden trading. Regular divergence is taken as a possible trend reversal, while hidden divergence is taken as a possible trend continuation. It is a steady way to earn regular profits over a period.
It is although not a new trading technique, but is useful. You can make earnings from hidden trading movements by locating trend reversals. This can be done even if the market is bearish or bullish. You can expect profits by just knowing the direction of the market with the help of divergent tracking.
It is a straightforward and uncomplicated method that uses simple rules and indicators. The three factors that this method consists of are simple moving average envelopes, exponential moving average, and stochastic. You can spot the divergent trends by monitoring the indicators, as it helps to forecast the price changes that give you an edge.
It is compatible with most of the commonly used methods in trend following ways. You can make profits from both sides of transactions. Divergence trading can be used in any market be it day trading or forex. It is multidimensional because it shows you where to trade, how to make profits, and when to stop the trade.
Whether you are a newbie or a veteran trader, learning and performing divergence trading helps to reduce the risks and make the trades more profitable. You can consider it and increase your profits. The correct tools and the best indicators can increase the chances of succeeding in the financial trading market. Thus, you can use the divergence trading technique to boost your profits.