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Divergences

What Is the Best Divergence Trading Strategy? 👑 What Is Divergence? Divergence is a trading phenomenon that offers reliable and high-quality information regarding trading signals. It refers to when an asset’s price moves in the opposite direction to the momentum indicators or oscillators. Commonly used indicators include the relative strength index (RSI), stochastic oscillator, Awesome Oscillator (AO), and moving average convergence divergence (MACD). Divergence is one of the many concepts that experienced traders use to the time when to enter or exit the market. To say a divergence occurs is to say that the price and momentum are out of sync. This signals that the market is preparing for a trend reversal or pullback, but it does not necessarily guarantee trend directions. There are mainly two types of divergence: 1) Regular divergence is where the price signal creates higher highs or lower lows while the indicator makes lower highs or higher lows respectively. 2) Hidden divergence, which is the opposite of regular divergence, is where the indicator makes higher highs or lower lows while the price action creates lower highs or higher lows respectively. Regular Divergence vs. Hidden Divergence What Is Regular Divergence? Regular divergence can be divided into two types: regular bearish divergence and regular bullish divergence. What is Regular Bearish Divergence? Regular bearish divergence occurs when the price action makes successively higher highs while the indicator makes consecutively lower highs. This suggests that the asset’s price is preparing for a reversal into a downtrend. The indicator signal means that the momentum is changing. Even though the price action has made higher highs, the uptrend may be weak. In this scenario, traders should get ready to go short, i.e., to sell the asset and repurchase it later at a lower price. What is Regular Bullish Divergence? Regular bullish divergence happens when the price action forms progressively lower lows while the indicator creates higher lows. This implies that the prices will move in an upward trend soon. The indicator action implies that the price needs to catch up with the indicator signal and that the downtrend is weak. In this scenario, traders should get ready to go long, i.e., to buy the asset. How to Trade Regular Divergence? Divergence only tells traders that the momentum of a price movement is weakening. This does not necessarily lead to a strong reversal, and the price movement may just be entering a sideways trend (horizontal price movement within a stable range). To create a more reliable divergence trading strategy, skilled traders combine indicators with various tools. Regular bullish divergence and regular bearish divergence have different entry rules. In any case, once a trader has spotted a divergence, they should consider how to enter or exit the market and place their Stop Loss or Take Profit orders. What’s a hidden divergence? Divergences not only signal a potential trend reversal but can also be used as a possible sign for a trend continuation (price continues to move in its current direction). Hidden bullish divergence happens when the price is making a higher low (HL), but the oscillator is showing a lower low (LL). Hidden Bearish Divergence occurs when price makes a lower high (LH), but the oscillator is making a higher high (HH). Keep in mind that regular divergences are possible signals for trend reversals while hidden divergences signal trend continuation. Regular divergences = signal possible trend reversal Hidden divergences = signal possible trend continuation Conclusion Trading divergence can be very profitable if traders can reliably identify divergence by making use of the trading tools in their arsenal. However, like all trading strategies, using divergence indicators involves a certain degree of risk. [
Education
by FOREXN1
24
How a possible tradeplan could look like #BTCHi @everyone, In this chart we explain how we could enter a trade if this scenario will occur. Its used for educational content (but based on a real plan) to show how to create a plan on a possible scenario. Always think a few steps ahead, its just like playing chess. Its not given that this scenario will play out but,,, : if this happen then we know how to anticipate. We should wait for conformation (divergence), if no divergence? Then wait till 2nd conformation, if we missed out? Then wait for 3th oppertunity to enter the position. Trading without having a plan, is like driving without hands on the wheel. It can go good for a while, but 100% for sure u will fail. Cheers, Team Quantistic
Short
by Quantistic
2
Thu 3rd November 2022 Daily Forex Charts : 5x New Trade SetupsGood morning fellow traders. On my Daily Forex charts using the High Probability & Divergence trading methods from my books, I have identified 5x new trade setups this morning. As usual, you can read my notes on the chart for my thoughts on these setups. The trades being a AUD/USD Sell, GBP/CHF Sell, GBP/USD Sell, USD/CAD Buy & USD/JPY Buy. A few of these are high risk and there is obviously some correlation here, so be aware of risk % per trade and overall risk. Enjoy the day all. Cheers. Jim
by JAGfx
10
The art of trading- Spotting Divergences is a good way to be prepared for a potential trend reversal. - Many peoples are using RSI in a wrong way, as fix point indicator (oversold or overbought). - in reality RSI is a "Momentum indicator". Point to Point. - Divergences most of the time are not enough to enter a position but help you to have more nice cards in your hands. - They can be combined with Trend Lines, Supports/Resistances, pivots, MAs/EMAs and much more indicators. - More information you get on a trend, more is helpful to be accurate. - the reverse of the medal is using too many indicators at the same time can make you confuse and doubt. - Trading is an art but patience a virtue. Happy Tr4Ding !
COINBASE:BTCUSD
by thecryer
4
Daily Real Estate ETF [DRV]: 1-Month Forecast Fundamental Perspective: In the past 50 days, the Direxion Daily Real Estate Bear 3X ETF (DRV) has experienced a surge of over 90%. As a leveraged ETF corresponding to the inverse of the Housing Market, this hardly comes as a surprise. In the past two weeks alone, the Federal Reserve raised benchmark interest rates by another 75 basis points in its ongoing struggle to curb inflation, and this has resulted in the mortgage interest rate increasing nearly 7%, adding even more pressure on potential homebuyers who are already struggling to navigate the historically high prices across the country. With 90% of mortgage holders having interest rates below 5%, not many are willing to part with a home, only to purchase a new one at an increased rate of 6.3%. Fueled mainly by this lack of supply, housing prices continue to rise in the short term, further amplifying the strain on the ever-growing housing bubble. Technical Perspective: From a technical standpoint, DRV is currently caught in a cross-current of two opposing channels, shown on the graph in yellow. The larger, ascending channel has been active for nearly a year, while the smaller, descending channel became active late last month when the price of DRV broke through the horizontal resistance of around $60. Examination using a custom, multi-timeframe WaveTrend indicator (coming soon) also indicates that a minor bearish divergence may playout in the second week of October, followed by a more significant bullish divergence that may push the price towards the upper portion of the ascending channel during the first few weeks of November. Note: The forecasted candles (shown in white) are based on lower timeframe fractals on the Heiken Ashi plot. They are intended to demonstrate one possibility of how price may interact with horizontal supports and channel boundaries in the coming month. The pivots in the projected price action have been retrofitted to be consistent with standard channel mechanics and Fibonacci spaced time intervals.
AMEX:DRVLong
by jdehorty
GravitaThis stock has given good breakout from decending parallel channel with good intensity of volume, also positive divergences in RSI and Macd signaled on daily time frame before breakout. RK's mass psychological Cloud buy activated and RK's buy signal activated, Rsi breakout also making scenario more powerful, adx showing good strength along with positive Dmi, Overall looking good to go long, with respected levels. Breakout along with good intensity of volume Positive divergence in macd Positive divergence in RSI RK's mass psychological Cloud buy activated along with breakout also along with buy signal Macd in daily positive crossover and Uptick and also above zero line Macd in weekly uptick now Breakout in RSI of daily time frame Price challenging upper bollinger band Dmi adx also positive on daily time frame Most investors treat trading as a hobby because they have a full-time job doing something else. However, If you treat trading like a business, it will pay you like a business. If you treat like a hobby, hobbies don't pay, they cost you. Disclaimer I am not sebi registered analyst My studies are Educational purpose only Consult with your Financial advisor before trading or investing
NSE:GRAVITALong
by RK_Chaarts
[S&P500, NASDAQ, and BTC] Can't you all three be bullish please?Hello everyone. Today we’ve prepared a comparative technical analysis for S&P500, NASDAQ, and Bitcoin in macroscopic perspective by observing daily and weekly charts. Line charts for future commodities from CME were used which are ES1, NQ1!, and BTC1!. Also, in order to observe possible trend reversal signal, RSI indicator with default length of 14 was referred with. Let’s start with daily charts. S&P500 made a significant high at January 3rd while NASDAQ and Bitcoin made highs about two months earlier: at November 19th and 9th respectively. Let’s have a look at the markets after forming historical highs. S&P500 bounced up to 0.618~0.786 retracement level of the corrective wave structure and then dropped reaching 1.414~1.618 projection levels. Similarly, NASDAQ retraced up to 0.618 level of the correction and then dropped reaching 1.13~1.272 projection levels. In contrast, Bitcoin was much more bearish only retracing about 0.382 level and then continue to drop quite steeply reaching 0.786~0.886 projection levels. RSI indicators are also showing some different aspects for Bitcoin, compared to other indices. Both the prices of S&P500 and NASDAQ showed LL(Lower Low) while RSI of these showed HL(Higher Low) during 1/27~6/16 and thus indicating bullish divergence signals On the other hand, both the price and RSI showed LL for Bitcoin which means divergence is no longer valid. US indices generally showed decent amount of bullish rallies in between corrective waves time to time and bullish divergences appeared as well so some technical dead cat bounce or PRZ(Potential reversal zone) can be expected. However, wave structure for Bitcoin seems to be a bit more bearish due to smaller upward retracements, steeper falling waves, and absence of bullish divergence signal. Let’s then look at weakly charts which can be interpreted as more macroscopic views. I have selected the lows formed right after COVID19 shock for all these three. As can be observed, Bitcoin went through deeper retracement for about three months (4/12~7/12) throughout the bullish rally towards the historical high. After, even though Bitcoin made a swing high, this dip in the middle affected RSI to be cooled down a little bit pulling RSI down. Comparing retracement levels of each impulsive waves starting from the COVID19 for these three, 0.382~0.5, 0.5~0.618, and 0.707~0.786 Fibonacci retracement levels have been reached for S&P500, NASDAQ, and Bitcoin respectively. Bitcoin clearly has shown deeper retracement than the US Indices. Moreover, short-term bullish divergences can be observed on US Indices and mid-term bullish divergences on both NASDAQ and Bitcoin. Weekly charts indicates some signals of possible short-term dead cat bounces for US Indices and some of possible mid-term bounces for NASDAQ and Bitcoin. Personally, I think S&P500 might be a little bearish in mid-term perspective than other two.
CME:BTC1!
by Tommy_Trader
Divergences + Oscillator Confirmation: A Simple System.This will be a tutorial using divergences and oscillator confirmation buy/sell signals. Hello. Here I present a simple system that is very profitable but along side this system I will present a risk management system that is easy on emotions and robust on capital. I predominantly use the 1hr and the 4hr to look for both REGULAR divergences and HIDDEN divergences. The reason I use the 1hr and 4hr is because I find them easiest to trade. We can spot great and powerful divergences in the weekly or daily time frame but how do you enter into positions on such large time frames? We can't unless we use huge stops and tiny sizes. Therefore we can look for better opportunities in the 1hr and 4hr timeframes where those divergences are reliable and risk is easier to manage. I do not recommend moving any lower than the 1hr time frame because oscillators just generate noise and bad trades. REGULAR DIVERGENCE is perhaps easier to identify but more difficult to trade because they most often happen at trend changes when volatility tends to rise. I associate less risk with REGULAR DIVERGENCE specifically smaller positions and wider stops because tops or bottoms are difficult to time. If you are an inexperienced trader it is best for you to start looking at hidden divergences which trade with the trend. HIDDEN DIVERGENCE is easiest to trade but possibly more difficult to identify. HIDDEN DIVERGENCE tends to be a continuation of the trend confirmation. This for me tends to be easier to trade because you are buying a dip in the trend which tends to be less volatile (of course this is not always the case and you can see for yourself if you start trading divergences) REGULAR BULLISH DIVERGENCE: Regular bullish divergence is when the price action makes a lower low while an oscillator like The RSI or the Stochastic makes a higher low. REGULAR BEARISH DIVERGENCE Regular bearish divergence is when the price action makes a higher high but the oscillator makes a lower high HIDDEN BULLISH DIVERGENCE Hidden bullish divergence is when price action makes a higher low and the oscillator makes a lower low. HIDDEN BEARISH DIVERGENCE Hidden bearish divergence is when price action makes a lower high while the oscillator makes a Higher high. The method I use is simple. STEP ONE: IDENTIFY THE TREND: I use the 200EMA in the 1hr or 4hr time frame and take trades corresponding with the trend. The 200EMA simply acts as a method to gauge if the price action is bullish or bearish. If the price action is above the 4hr EMA then I look for a bullish set up. If the price action is below the 4hr 200EMA then I look for a bearish set up. ( I must admit I do not always follow my advice here as today I went short and long but with experience comes flexibility). If you are an unprofitable trader I highly recommend sticking to this part of the system to prevent overtrading and take the most probable trades possible. STEP TWO: IDENTIFY REGULAR OR HIDDEN DIVERGENCE. This step will get easier with practice. As you see in this chart, We see both REGULAR DIVERGENCE which IMO is easier to spot and we have also HIDDEN DIVERGENCE which is more difficult to spot as it is across days. So now that we have identified divergences in the Stochastic RSI we are looking for a confirmation of the divergences we just found. The Stochastic RSI is simple to use when used with divergences. With out divergences the Stochastic RSI gives too many signals and sometimes wrong signals therefore we should only use the Stochastic RSI (or your oscillator of choice) when combined with divergences. If it is a perfect set up such as the morning trade where I found regular negative divergence I waited for the 1hr Stochastic RSI oscillator to confirm a sell signal by crossing the 70% line DOWNWARDS. I set the correct stop of 1% (more on risk management later) and waited for the oscillator to turn down to oversold where amazingly enough it fell and created HIDDEN BULLISH DIVERGENCE when we plotted a line from previous days' Stochastic history. Once the Stochastic turned upward on the 20% line this was my signal to exit the trade...AND because the Stochastic had now created HIDDEN BULLISH DIVERGENCE I took the long side which was an even better trade. Days like today do not happen often if ever but if you read my previous posts I had been anticipating such scenarios based on other factors I will not go into here. Read them posts if you want to know how I suspected this kind of price action was going to happen. STEP THREE: Is not a step, like I mentioned this is an incredibly simple system but no system is complete without robust RISK MANAGEMENT. The risk management comes from the great traders at Guerrilla Trading. I am not affiliated in any way but I was with them for two months and I highly highly recommend them. You will learn price action like no one else. Here I borrow on their money management ideas (I will not share all their ideas that would be unfair to them). It is simple. We will use only 1% risk by setting our stops accordingly. In the trade short in the morning on the micro Nasdaq I took a stop of 80 points. But I calculated my size according to my total capital meaning that if the Nasdaq moved against me 80 points I would only lose 1% of total capital. That's great! If the trade goes against me I would have only lost 1%. But as I have flexible stops, I also have no fixed targets and I let the oscillator let me know when to get out. In the case of the morning trade I took around 206 points. I did not know where the exit would be I just knew the oscillator would tell me. But as you can see by risking a psychologically manageable amount of risk I was comfortable in leaving the trade on until the oscillator told me when to exit. Similarly on the lunch trade where I found HIDDEN BULLISH DIVERGENCE and the Stochastic RSI confirmation crossing the 20% line I took the trade and I am still in the trade because neither the 1hr Stochastic RSI oscillator nor the 4hr oscillator have signalled a sell signal yet. And this is my own personal strengthening of the system. I try to take the 1hr trade over to the 4hr trade where I find I can remove as much of the noise from the lower timeframes as possible and capture almost an entire move. Shwing Trading baby! Well that is it. A simple system using divergences and oscillators to create great trading opportunities. This coupled with a 1% risk management and we have a powerful system that protects capital and maximizes rewards. Included here are several different examples of divergences I have posted on different time frames to get you started on your journey of using divergences.
CME_MINI:MNQ1!Education
by Sinex
1
Long various alt coins soonHello everyone, I am seeing a potential buy signal on Ethereum and similar alt coins coming up soon (within the next couple of days if not now). I am a purely technical analyst. I believe all the possible news and rumors that all the traders in the world have heard and acted on are already priced in the market. So to me reading what the market is telling me is like reading ALL the news, without reading any! Though I do enjoy reading crypto news at times. Just remember the trading axiom to buy the rumor and sell the news. This was certainly the case for ADA and DOT last year! Anyway I have offered an explanation of my system. I will not give you an analysis that suggests it can go two ways. Those kinds of analyses are pointless in my opinion. How does that help? I am telling you the market is showing at least a short term bottom, and so it is time for me to jump in. In my previous analysis, I suggested a hard down move for bitcoin, possibly to 20k. But now that I am seeing this signal, I have changed my mind. The signals appear when they appear, and I heed them, regardless of what I speculated on prior. That is it for now. If you have any questions, please feel free to ask. Wishing you the best!
Long
by jbrelin
5