One of the most reliable and easy to understand trading tools, must be divergence. It’s an indicator that you can use as a leading indicator. It might even be the only indicator you can use as such, as opposed to the other ones that can only be used as a lagging indicator. Divergence is a crucial part of many trading systems that some of the best traders out there use. If it fits your trading style and personality, it can be well worth it to look into mastering the art of trading divergence.
Divergence literally means ‘to separate’. And this is what you want to be looking for. You can spot it by looking at the price action and comparing it to the movement of the indicator. The basic idea is that divergence gives you a heads up of decreased momentum. This will still be hidden and can be an indicator of an upcoming reversal. As you could see in the video above we are taking it to the next level in this post. So you better have a solid understanding of the basics. If you want to get a feeling of the basics of trading divergence have a look at this article and video.
Divergence in Trading Strategies
There are plenty of strategies that lean heavily on the tool that divergence is. Some of the best strategies that we use at Forex Watchers is divergence. If these strategies are applied consistently and if their rules are strictly being followed, these strategies can be very powerful. When we are trading divergence at Forex Watchers we often use one of these strategies: CCI Divergence Breakout Strategy, Pivot Points MACD Divergence Strategy and Prediction Cycles with Divergence. These strategies have proven themselves and are great examples of how powerful divergence can be.
So the key thing here – that will separate you from the 95% of losing traders – is how you combine the divergence with a solid strategy.
Trading divergence is very powerful, but you should only use it as a tool to indicate trading opportunities. So certainly do not use it as a buy or sell signal. To gain a real edge in the market, all the successful traders always combine whichever tool they use with a strategy and their read. This way using it as a tool as part of a strategy, trading divergence can really help you find those high probability entries. And this in turn will help you become consistent and confident in your trading and help you reach your goals.
Successful trading is a numbers game and comes down to making better trading decisions than the losing 95%. Using divergence as part of your trading system, can give you a great edge over the losing guy on the other side.