April 9th, 2010
Posted in Divergence can be identified from the oscillating signals, the most popular of which are the MACD, Stochastic and RSI. Any of these running on your day trading chart with costs in either candlesticks or bar chart form can be used.
Bearish Divergence
Bearish diverging exists when the price chart is apparently bullish but the oscillator is showing a bearish trend.
In that particular situation a line across the highest highs of the price chart will be showing a rising trend. But a line drawn across the highest highs of the oscillating indicator will show a downward trend.
If you are in this market going long, it is probably time to get out. If you have a signal to open a trade to go long, the deviation is signalling you not to do it. If you have got a signal to open a trade to go short, on the other hand, the divergence is confirming that and you can go ahead.
Bullish Divergence
Bullish divergence is the other way round. It exists when the price movement on the day trading chart is reputedly downward, but the oscillator is showing a rising trend.
Here a line across the lowest lows of the price chart will show bearish (downward) movement, while a line across lowest lows of the oscillator will be moving upward.
The signal is the opposite to the prior one. The divergence is signalling that the bearish trend is coming to an end so that you can close short trades and open long trades if that fits with the other signals of your system.
Naturally no system is 100% accurate and that applies to using deviation in trading just the same as anything else. Financial trading is risky and you can lose.
However, attempting to find divergence as well as your ordinary system could be a awfully dynamic way to add to the success of your system. Increase your profits by spotting patterns in deviation from the signals on your day trading chart.
Tags: currency trading, expert advisor, forex robot, forex strategy, forex trading