Divergences are one of the most popular trading concepts because they offer very reliable and high-quality trading signals when combined with other trading tools and concepts. Although indicators are somewhat lagging, just as price action is lagging as well, when it comes to divergences, this lagging feature is actually going to help traders find better and more reliable trade entries! Divergences can not only be used by reversal traders but also trend following traders can use divergences to time their exits. Let’s dig into what a divergence is so you can get comfortable with using it in your strategy successfully.
A divergence forms on the chart when price makes a higher high, but the indicator you’re using makes a lower high. A divergence exits when you’re indicator does not agree with price action. A divergence alone is not something that’s strong enough and many traders experience bad results when trading only with divergences. Just like with any trading strategy, you need to add more gathering factors to make your strategy strong.
Some reasons for using divergence trading is, it can be used to identify Forex reversals, traders can take advantage of Divergence by using a variety of trend-based strategies. The word Divergence itself means to separate and that is exactly what we are looking for today. Divergence occurs when price splits from indicators and begins heading in two different directions. Divergence trading is a powerful trading concept and the trader who understands how to trade divergences in the right market context with the correct signals which can create a hefty method and effective way of looking at the price. The Divergence indicator in Forex may be an effective tool for traders to identify signals of close market trend reversal.
Through the effective use of Forex Divergence and Convergence, you may be able to avoid possible losses and maximize your profits. The Apiary Fund encourages you to develop your own strategy and suggests that you explore all strategies to find the best one that suits you. The Apiary Fund taught when trading with Divergences, never take a position too high or too low, but instead at the immediate support and resistance levels. In most cases, prices will continue to make another attempt to make a high or low, which is usually done by the market to hunt for any stops placed by traders trying to get more pips from their Divergence trades.