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How to earn on Forex with a help of divergence?
Written by: PaxForex analytics dept - Sunday, 16 October 2016 0 comments
Once you trade in the Forex market, you probably heard about the oscillators. Combining oscillators and price action, you get a powerful combination of tools that can be very profitable. And there is another important point related to the divergence that many traders overlook.
In a normal market, if the oscillating indicators (RSI, Stochastic, MACD, etc.) make higher maximums, they must meet higher maximums on the price. When the oscillator makes a lower maximum, the price action should reflect a similar picture.
But what happens when the oscillator and the price are not the same? The divergence! Divergence occurs when, for example, the RSI becomes lower and lower. But instead of falling (as would be expected), the price begins to rise. This is a great indicator that shows that the currency will continue to grow.
is an indication in real time, while the RSI is a lagging indicator. So when the price goes up, you should focus just on it.
If the oscillator is reduced, especially when it is in the oversold zone, you should already expect a market turn. And when you see the difference in the time, as the figures recorded in the oversold zone, it is almost a guarantee that the price will move straight up.
The reason why the divergence is so beneficial, that you do not have to risk a large sum of money to make a good profit.
For example, if you see a divergence in the oversold field of your indicator, then you should buy a currency pair and put the stop loss below the last support. If the market continues to fall, you will lose only a few pips. But if he does exactly what you expect (as usually happens), then the price will move straight up, bringing you a decent profit!