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. 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. 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.

Regardless of which trading method you use, you should always apply stop loss and take profit. 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. 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. Each forex divergence indicator offered above is unique and has its own features and accuracy degree suitable for particular financial markets. Divergence principles will work with any technical indicator.

So, you can use any oscillator that suits you best. 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:. 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. 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 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. 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.

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. 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.

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. 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.

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. 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.

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. 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. The stochastic goes up into the oversold zone. Hence, a false reversal or consolidation can be expected, but not a trend reversal marked with blue circles.

We keep the short open. Eventually, there is a bullish correction. There is no divergence. Oscillators are in the balance zone. We hold the short. 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. 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. Divergence is the deviation between the price chart and the technical indicator.

For example, the price chart indicates an uptrend while the indicator hits lower lows. Or the indicator is going up while the price trend is down. Regular divergence suggests a soon price reversal. It is a good signal to enter a trade at the top or the bottom of the trend. There are also hidden and extended divergences. Unlike regular divergences, they signal trend continuation. These signals are good for trend trading and for filtering false signals. To detect the divergence, you need to draw the line across the lows or the highs of the candlestick chart.

Draw another line across the extreme points drawn by the indicator line or the histogram. If the lines go apart, it is a divergence. The strongest signal is delivered by regular divergence. In an uptrend, for example, the regular divergeFor example, ince bearish is when the price hits higher swing highs, but the oscillator fails to break through the highs. A regular bullish divergence occurs when the indicator fails to update the lows, while the price chart hits lower lows. The regular divergence occurs before the trend reversal.

So, when you confirm that the divergence is true, you should enter a trade opposite the trend that is exhausting. If the ongoing uptrend is going to reverse, you enter a sell position. If the downtrend is exhausting, you enter a buy trade. Hidden or extended divergences signal the trend continuation. So, you should enter a trade in the ongoing trend direction when you spot a hidden or an extended divergence.

Regular Direct divergence means the trend reversal; other types of divergences, hidden or extended divergence, deliver the trend continuation signal. That is why the hidden divergence, like the extended one, is also called inverse. Trading based on divergence alone is not accurate. I strongly suggest using additional indicators to confirm divergence.

Experienced traders even develop the Expert Advisors on divergence and automated divergence trading systems. These automated trading systems check the divergence and deliver the signals automatically. To analyze the divergence, you can use any oscillators.

The best oscillators to trade divergence are the MACD, the Stochastic, the RSI, the Awesome Oscillator, the Chaikin Oscillator, the DeMarker, the Momentum, the Volume Oscillator. Although all those oscillators are different, the divergence signals are similar. Each of the oscillators delivers divergence signals. You should choose the tool according to your tastes.

Divergence signals are the basis and are part of the trading strategy itself. Or they are part of a filter that checks signals for reliability. Knowledge and ability to work with divergence signals can hardly be overestimated. These skills help a trader at least avoid major mistakes and keep the deposit. 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. That is all so far. Subscribe to the LiteFinance trader blog! There is always something useful! Did you like my article? Ask me questions and comment below.

I'll be glad to answer your questions and give necessary explanations. Your country is identified as United States LiteFinance Global LLC does not provide brokerage services in your country. Stay on LiteFinance Global LLC site.

Home Blog Professionals Divergence Forex: What is Divergence Trading and How Does it Work. Divergence Forex: What is Divergence Trading and How Does it Work. Divergence forex FAQ What is divergence in forex trading? With a trained eye, spotting one should be an easy task. I use it for a number of reasons outlined below. Use a time frame higher than your entry time frame for this one. Once the bias is formed, only take trades in its direction, not against it.

Use it as a VISUAL TRIGGER for your entries. When you feel like jumping the gun due to anxiety, or too afraid to pull the trigger after taking a loss, go back to what you see and trade it, no gut feel involved. Why use it only for entries? After all the reason to exit a trade is if there is an opposite entry signal, which in this case, is another divergence that points to the opposite site. You will undoubtedly see pullbacks and your profits dancing up and down, but inevitably a trend will continue to make new highs and lows.

I consider myself to be a day to swing trader. From that point onward, only look for sell setups on the H1.

We have on the H1 at point 1 and 2, bearish regular divergences. Cheers to your trading success! Learn more about The Complete Price Action Course here.

I became interested in the Forex markets in after attending a stock trading meeting at a private residence. One guy announced that he had made a killing by trading the Yen against the US dollar. Who knew that the individual on the street could even trade currencies? Up until then, it was only the banks or wealthy individuals with access to this type of trading. A whole new industry was born. At first there weren't many reputable brokers around, their platforms were unreliable, spreads were huge and the internet was dial up.

Forums popped up and 'trading gurus' appeared. There was money to be made by those who were were smart at the time, either by straddling the news releases or exploiting the carry trade. But brokers also got smarter and either shut these advantages down or created trading conditions that made it difficult to profit from. My problem was, I listened to too many so called 'gurus' and got caught up in all the hype. Always thinking they were smarter than me as their systems were complex, and therefore must be better than anything I could come up with.

So for a few years, I bounced around different systems, blowing accounts and giving back profits I had managed to make. There were good times and bad times, but I never gave up. I soon realized that some of the 'gurus' were the real deal, and started to pay attention to them to see what they had to offer.

I became smarter with my money management, got out of the day trading habit and generally simplified my trading methods so they were easy to implement and explain. I have also dabbled with building my own trading robots with mixed success and use them at times to assist me with my trading.

I now make a living from trading Forex, mainly off the 4hr or Daily charts. My systems are simple and profitable overall. I love trading Forex and I see it as having a huge potential to make some serious income.

It is not as easy as some would make you believe, but if you keep it simple, control your money management, and be consistent, then there is no reason that you too shouldn't succeed in the world of Forex trading. Patience, courage and discipline My name is Jim Brown and I am a full-time Forex Trader.

I first became interested in the Forex markets back in early when I attended a stock trading meeting at a private residence. One guy announced that he had made a killing by trading the Japanese Yen against the US dollar over a period of about 18 months.

He had proof to back his claims, so obviously I was interested. Up until then, it was only the banks or very wealthy individuals that had access to this type of trading.

So now a whole new industry was born. It wasn't easy at first as there weren't many reputable brokers around and their platforms were unreliable at best. The spreads were huge and the internet was still predominately dial up. The forums began popping up and the 'trading gurus' appeared. A lot of stock, futures and options trading systems were converted to suit the FX market, which was an entirely different beast due to there being no actual central exchange, and a market that ran 24 hours a day for 5 days a week.

But brokers also got smarter and either shut these advantages down or created trading conditions that made it difficult to profit from them. Always thinking they were smarter than me as their systems were very complex, and therefore must be better than anything I could come up with.

So for a few years, I bounced around different systems, blowing accounts and generally giving back any profits I had managed to obtain. There were both good times and bad times. But I never gave up.

I soon realized that some of the 'gurus' were actually the real deal, so I started to pay attention to them and see what they had to offer. In the meantime, I became smarter with my money management, got out of the day trading habit and generally simplified my trading methods so they were easy to implement and explain.

I generally prefer to manually manage a trade once I am in as I find the human brain can perform a lot better than a robot that works on certain inputs. After constantly looking at Forex charts for the last 13 years or so, I have a pretty good idea of patterns etc, and generally have a fair idea of what may happen next on a chart. A trading robot just can't do this. These days, I make a living from trading Forex, trading mainly off the 4hr or Daily charts.

I can live anywhere in the world I choose, as long as I have internet access. My systems are simple but they are profitable overall, which at the end of the day, is all that matters. Customer Reviews, including Product Star Ratings help customers to learn more about the product and decide whether it is the right product for them. To calculate the overall star rating and percentage breakdown by star, we don’t use a simple average.

Instead, our system considers things like how recent a review is and if the reviewer bought the item on Amazon. It also analyzed reviews to verify trustworthiness. close ; } } this. getElementById iframeId ; iframe. max contentDiv. scrollHeight, contentDiv.

offsetHeight, contentDiv. document iframe. An invitation to join his Facebook and Telegram Groups which have around 6, new as well as experienced Forex Traders contributing, including daily interaction with Jim. Jim calls his trades live, shares his results and records weekly trade analysis videos on his YouTube channel.

Contact with Jim should you require any clarification on this trading method. Jim, from Queensland Australia, is a full-time Forex Trader and currently resides in Vietnam. While Divergence may sound a little technical and intimidating, be assured that it is easy to understand when you know what you are looking for. Some even consider Divergence to be a leading indicator.

Basically it is the difference between what the actual price on the chart is doing and what an Oscillator type indicator is doing. This method can also be used with any other financial instrument that your MT4, MT5 or TradingView platform offers.

Previous page. Print length. Sticky notes. On Kindle Scribe. Publication date. December 20, File size. Page Flip. Word Wise. Enhanced typesetting. See all details. Next page. Due to its large file size, this book may take longer to download.

Books In This Series 3 Books. Complete Series. Page 1 of 1 Start Over Page 1 of 1. Jim Brown. Customers who viewed this item also viewed.

Page 1 of 1 Start over Page 1 of 1. Stocks, Currency Trading, Bitcoin Book 2. Kindle Edition. Forex Trading: The Basics Explained in Simple Terms Bonus System incl. Stocks, Currency Trading, Bitcoin Book 1. Trading: Technical Analysis Masterclass: Master the financial markets.

Rolf Schlotmann. SECRETS ON FIBONACCI TRADING: Mastering Fibonacci Techniques In Less Than 3 Days. Frank Miller. The Black Book of Forex Trading: A Proven Method to Become a Profitable Forex Trader in Four Months and Reach Your Financial Freedom by Doing it Forex Trading. Paul Langer. VOLUME PROFILE: The Insider's Guide to Trading. Trader Dale. About the Author I became interested in the Forex markets in after attending a stock trading meeting at a private residence.

Jim'sBook, Trading with Divergence on MT4 is an awesome companion to the MT4High Probability Forex Trading Method - Clifton Mitchell In this book, Jim goes on to explain in greater detail what divergence is and how to recognize it.

He also provides many visual examples as well to help the reader. Divergence coupled with the already good indicators help to increase the probability of a potential winning trade. Also, with the purchase oft he book, you can gain access to the Facebook group where members share ideas and Jim updates the feed regularly with new potential trades. There is also a section where you can browse through documents and examples from the book saved in.

You can experiment with setting and use different oscillators, the AO, for example. Help others learn more about this product by uploading a video! It is quite a common situation in trading divergence signals. A regular bearish divergence forms at an expected end of a trend. But the reader gets the bonus of a comprehensive review of Jim's High Probability trading method. 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. Up until then, it was only the banks or wealthy individuals with access to this type of trading.

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