Trading divergence is often said to be one of the most profitable tradings. There are price swings in every market. When you are looking for trading signals you can trust then divergence would give you exactly that.
Every trader has a set of indicators that they might follow. These indicators might help them come to a conclusion about the possible direction of price trends. But even the strongest indicators might go wrong sometimes. And there are times when your indicator might actually indicate a lower high while the price reached is actually a higher high. This out of sync situation is when a divergence occurs.
When a divergence occurs it gives a great window because this is when a probable pause or reversal is prone to occur in trading. When you are trading forex if you notice a divergence then there are chances of the trend to reverse and this indicates the direction. Even if the trend reversal doesn’t happen as planned it would at least indicate that the trend is least likely to follow the same trend as in the current state.
You would be able to use trend channels to understand divergence. Some traders also use trend lines to predict possible points of a trend reversal. There is a type of divergence that is not spoken about too often and that is the hidden divergence. When this occurs, unlike the regular divergence you might expect trend continuation to occur.
Example of a divergence:
Among the many divergences that occur RSI divergence is often the most popular one.For the RSI to indicate a higher high there should be a strong bullish trend that prevails. But if you notice the RSI making a lower high during an upward trend that only means that the strong trend that has been live till then is going to break soon.
Do your research:
Trading divergence is not very simple at the first glance. But when you start reading more about it you would soon fall in love with this concept. This would also act as a great backup plan for your trading strategies. There is a slope of the line that connects the actual price of the stock at hand. There would also be a slope of the line that connects the indicator based values. So if the slopes of both these lines are found to be different at some point a divergence occurs. There are now easy trading platforms like QProfit System which help those that are new to trading. You can use these platforms to study the performance of your trading strategies as well. To know more about this system see this.