Forex divergence

Forex divergence (divergence)

Divergences not only signal a potential trend reversal; they can also be used as a possible sign for a trend continuation. is one of the most reliable German divergence signals the technical analysis. Divergence is of forex traders, supporters of stocks, bonds, commodities and other instruments already in use, since there are indicators. Divergence basically means simply that the price goes in one direction and the other in the indicator. We therefore distinguish two types of this phenomenon: Some traders highly recommend the MACD Divergence Forex signal almost suggesting you jump into a trade as soon as you see it.

Positive divergence:
The price is in this case in a downtrend and make new lows. Normally, the indicator behaves just like the price and also made new lows. This is not the case if there is a negative divergence. In this case the indicator stopped its downward trend and rises higher than its low point, although the price has fallen further. Price indicator and thus drift apart.

Negative divergence:
In this case just happens that what they see in the attached chart. We achieved a new high, the indicator does not this time but again the same as the price, but he falls. As you can see in the graph, the trend lines drawn to show in different directions. There is thus a divergence emerged, a divergence of price and indicator.

Divergences аrе mοѕt commonly used іn forex tο predict price reversals іn both up аnԁ down trending markets. In a nutshell, Divergence occurs when the speed with which the new high was achieved is lower than the speed with which the old, lower high was attained. There is less momentum.
It is worth mentioning that divergence can be read not just one indicator, but that different oscillators can represent this behavior. Examples are the RSI, MACD and Stochastics.

What is a Forex trader to start with divergence?
As mentioned above, it is this phenomenon is a very informative tool to detect changes in trends before they happen. The advantages are obvious. Unlike laggenden indicators can act from the start a trend. Take a look at it again the chart. The price reached a new high, but closed near the point at which he opened. Then there was the divergence between price and MACD. When we received the next day, an inside bar (the bar is completely enclosed by the previous) and dropped the price on the following day, you could place a very high probability of winning a Short trade.

Do they know now, why then would the euro at 1.60 to sell? It existed divergence. We achieved on the daily charts again with the same high 1.60, but all indicators are already fallen considerably. A very clear sign that a trend change was imminent.

Unfortunately divergence is not a panacea and there are situations, not in the s the tool works. This is a very strong trend in the case, such as the carry trade fell. Although there appeared several times on divergence, but it has never been a major trend change.