How to Ace Divergence Trading in Forex
The forex market is all about timing your trades well. Divergences give traders a market reversal signal right before a price trend changes and helps place successful entry or exit orders. In our article, we will understand everything about Divergences and how to trade them.
What does divergence mean in forex?
A Divergence occurs when a currency pair price moves in the opposite direction of the current market trend.
- When the Divergence is in the upward position, it is called a positive Divergence and it signals a bullish market trend. While the technical indicator shows increasing results, the currency pair prices fall.
- When the Divergence is in a downward position, it is called a negative Divergence and it signals a bearish market trend. While the technical indicator shows decreasing results, the currency pair prices rise.
What are the types of Divergences?
A regular Divergence is one of the most common reversal Divergences. As part of your forex divergence strategy, Iit is a leading indicator as it provides traders with buy and sell levels near the low and high prices accordingly.
- A Regular Bearish Divergence occurs in an uptrend where the currency pair prices touch higher high levels, and the indicator values touch a lower high level. This signals traders to place sell orders at the higher high currency pair price levels and exit the market before a bearish reversal occurs.
- A Regular Bullish Divergence occurs in a downtrend where the currency pair prices touch the lower low levels, and the indicator values touch a higher low level. This signals traders to place buy orders at the lower low currency pair price levels and enter the market before a bullish reversal occurs.
A hidden Divergence is a continuation indicator that is used for trading along with the existing trend.
- A Hidden Bearish Divergence occurs during a downtrend when the indicator values touch higher highs and currency pair prices touch lower highs. It signals traders about a downward continuation price trend and provides them with the ideal price level to exit/sell the trade.
- A Hidden Bullish Divergence occurs during an uptrend when the indicator value touches a lower low-price level, and the currency pair prices touch a higher low level. It signals traders about an upward continuation price trend and provides them with the ideal price level to enter/buy the trade.
Top indicators to spot Divergences
1. Moving Average Convergence Divergence (MACD)
The MACD indicator is a trend-following technical tool that shows the relationship between a fast-moving average and a slow-moving average. When the MACD line crosses its signal line (9-day EMA) from above, it is a bullish divergence and signals traders to place entry/buy orders. However, when the MACD line crosses its signal line from below, it signals traders to place exit/sell orders due to a bearish divergence.
2. Relative Strength Index (RSI)
The RSI is a technical indicator that indicates overbought and oversold market conditions by measuring how frequently the currency pair prices change. During a downtrend, when the currency pairs are oversold, the RSI signals a positive divergence, indicating traders to place long orders due to a bullish reversal expectation. During an uptrend, when the currency pairs are overbought, the RSI signals a negative divergence, indicating traders to place short orders due to a bearish reversal expectation.
3. Stochastic Oscillator
The Stochastic Oscillator is a momentum indicator that compares the closing currency pair price to its price range (between the support and resistance level) to predict trend reversals. The Stochastic Oscillator always trades between a range of 0 to 100, and when the readings are above 80, it indicates an overbought market level, signalling a downtrend reversal divergence, where traders can sell/exit the trade. The readings below 20 indicate an oversold market level, signalling an uptrend reversal divergence, where traders can buy/enter the trade.
4. Commodity Channel Index (CCI)
CCI is a technical indicator that is used to measure the difference between the currency pair's historical average price and current price to generate exit/entry signals. When the current currency pair prices are below their historical average prices, the CCI marks a higher low, indicating a bullish divergence and signals traders to enter the market. However, when the current currency pair prices are above their historical average prices, the CCI marks a lower high, indicating a bearish divergence and signals traders to exit the market.
How to Trade Divergences in forex?
- Identify the existing trend direction in the market.
- Find out the currency pair highs (or lows) and the technical indicator's lows (or highs) in order to spot the divergence level.
- After identifying in which direction both the currency pair price and indicator value is moving, identify the trend's direction in which it is moving.
- If the trend is following an upward movement, it is a bearish divergence signal that indicates traders to place sell/short orders. However, if the trend is following a downward movement, it is a bullish divergence signal that indicates trades to place buy/long orders.
- The stop-loss order can be set away from the current price at a distance from the highest high price level or lowest low price level.
- The take profit order can be placed at a distance of two times as much as the stop loss level.
Trade Divergences today to spot ideal entry and exit levels
To trade the market reversals successfully, Divergences play an important role as they compare the currency pair prices with the indicator's values. With our Blueberry Markets, you can trade Divergences seamlessly and experience tight spreads with priority support. Sign up for a live trading account or try a risk-free demo account.
Top Pivot Point Strategies
Pivot point analysis can predict not only price movements but also help time entries and exits correctly to develop a risk management strategy.
How to Use The Bill Williams Indicator
Bill Williams Indicator is helpful in analysing trending markets, reversals and momentum.
How to Use Relative Vigor Index in Forex
The Relative Vigor Index (RVI) is a technical analysis indicator that helps measure a trend’s strength in forex trading.
Technical Trading Strategies for Day Traders
Technical trading strategies for day traders include technical analysis tools to identify short-term trading opportunities in the market.
How to Use The Force Index Indicator in Forex?
The Force Index indicator combines the currency pair’s price and volume to determine the power of bulls and bears in the market.
The Ultimate Guide to Trading Trends in Forex
Trading trends in forex provides you with opportunities to identify the strong market direction and enter an order accordingly.
MT5 Indicators Every Trader Should Know
MT5 is a forex and stock trading platform that enables traders to place automatic orders.
What is Volume Trading Strategy
Volume trading in forex is all about trading currency pairs with high buying or selling pressure.
Top Low Spread Scalping Strategies For Forex Traders
Scalping strategies allow traders to leverage on the small price changes in the forex market to turn the trends in their favour.
What is Forex Currency Swap?
Forex currency swap helps reduce foreign borrowing costs and mitigate exchange rate risks.
What is Forex Spot Trading
With forex spot trading, one can make significant short-term profits by trading at prevailing prices.
How to Short Sell a Currency
Short selling enables traders to place lucrative forex orders even in a falling market.
How to Use The Chaikin Money Flow Indicator
The Chaikin Money Flow indicator provides future market direction by analysing the strength of the market trend and underlying buying or selling pressures.
What is Momentum Trading? Top Momentum Trading Strategies
Momentum trading leverages market volatility to the trader’s advantage by identifying the strength of the market’s current trend.
How to Trade With VWAP Indicator in Forex
The Volume Weighted Average Price (VWAP) helps eliminate any unwanted price fluctuations during the trading period.
5 Top ADX Trading Strategies
The Average Directional Movement Index (ADX) strategy measures the forex market’s overall strength.
How to Identify a Trend in the Forex Market
Identifying market trends in forex is also helpful in understanding if your trading strategy is going as per plan and where you can improve.
Forex Trading Robots: How Do They Work?
Forex trading robots make multitasking possible by processing multiple conditions like order entries/exits and entering stop loss orders automatically.
What Are Momentum Indicators in Forex
Momentum indicators measure how strong the price change is in the currency pairs.
How to Use Gator Oscillator For Forex Trading
Gator Oscillator helps in identifying a trending or consolidating market.
What is The Exponential Moving Average
Exponential Moving Average (EMA) helps in understanding the market’s trend direction.
Top Forex Volatility Indicators
Forex volatility defines the risk an investor takes in the market. The higher the volatility, the greater the risk and the higher the potential returns.
How to Use Forex Market Sentiment Indicators
Sentiment indicators in the forex market indicate extremely volatile market conditions.
How to Use The Hanging Man Candlestick Pattern For Forex Trading
The Hanging Man Candlestick pattern provides downtrend reversal signals, which helps traders place sell or short orders to profit off falling markets.
How to Add MT4 Indicators
MetaTrader 4 comes with several built-in and custom indicators to boost your trading strategy.
Top MACD Trading Strategies
Moving Average Convergence Divergence (MACD) strategies enable traders to measure market momentum and trend strength.
Top Indicators for MT4
MT4 indicators help analyse forecasted currency pair prices and place exit or entry orders accordingly.
How to Trade Bullish and Bearish Divergences
Bullish and bearish divergences enable you to trade market reversals.
Top Support and Resistance Indicators
Support and Resistance indicators identify price points on the forex chart where the markets can potentially reverse.
What is The Donchian Channel Indicator
The Donchian Channel indicator can determine volatility and potential breakout signals in the market.
How to Install MT4: A Beginner's Guide
MetaTrader 4 (MT4) is a powerful forex trading platform with a user-friendly interface and advanced analytical tools for automating trading.
What are Trendlines in Forex Trading?
Trendlines in forex provide clear market signals for placing long or short orders.
Market Order vs Limit Order
Market and Limit orders help execute automatic trading transactions, as per your trading preferences.
Bearish and Bullish Markets
In the trading world, it is essential to be aware of the bull and bear market trends because they define the direction of the market
How to Read Trading Charts
Trading forex live charts can help identify ongoing market trends, which can help you place successful traders.
Top Reversal Patterns For Forex Trading
Reversal patterns provide traders with price levels at which the market can potentially reverse.
How to Find The Best Forex Trading Signals
Forex trading signals are important market triggers that provide traders with ideal entry and exit price levels in the market.
Top Forex Trading Strategies That Actually Work
Trading in forex, you will come across several forex trading strategies -- some more complex than the others. It is immensely crucial to start forex trading with the right strategy.
Scalping vs Swing Trading: What’s the Difference?
Every forex trader has a different purpose, objective, time constraints, and investment capital. The right forex trading style for you depends on your main trading goals and requirements.
What are Volume Indicators
Volume in the forex market can be used to determine the upcoming market trends. Volume indicators are forex trading indicators that can identify if the volume for a particular currency pair is high or low, providing traders with market continuation and reversal signals
Shooting Star Candlestick Pattern
The Shooting Star Candlestick Pattern can identify bearish market reversals and provide traders with ideal price levels to short or exit the trade.
Top Trading Chart Patterns
Predicting future currency pair prices help in confirming market continuation and reversal signals.
What is Slippage in Forex Trading?
Slippages occur when a currency pair order is executed at a price different from the set market order price.
Buy limit vs Sell Stop Orders in Forex
Placing buy limit and sell stop orders help employ a price control strategy on forex trades. Let's take a look at buy limit vs sell stop orders.
The Best Time Frame For Forex Trading
A time frame is a designated time period where forex trading takes place. Time frames can be measured in minutes, hours, days, weeks, months and years.
Top Technical Indicators in Forex
Technical indicators are a market direction signal based on the current and historical price movement of a currency pair that provides traders with future price expectations
Top Continuation Patterns
A continuation pattern indicates if the current market trend is going to continue in the same direction or not
How To Trade Forex With Japanese Candlesticks?
A Japanese Candlestick is a technical analysis tool used to analyze the currency pair’s price movement in the forex market.
Top Momentum Indicators To Analyse Trend Strength
Momentum indicators are technical analysis tools that determine in which direction the market is headed and how strong or weak the ongoing trend is
Types of Moving Averages Every Trader Should Know
Moving Average is a technical indicator which averages out currency pair prices in a specific time period in order to accurately identify market trend reversals and support-resistance levels.
8 Popular Intraday Trading Indicators
Intraday Trading Indicators help place successful short-term trade orders in the forex market.
What is the Tweezer Candlestick Formation?
The Tweezer Candlestick formation is a reversal pattern that indicates either a market top (strong uptrend) or market bottom (strong downtrend)
Average Directional Index
The ADX is a strength indicator that measures how strong or weak a particular market trend is.
How to Use Elliott Wave Theory For Forex Trading?
The Elliott Wave Theory analyses a currency pair’s long-term price movement in the forex market.
What are Pivot Points in Forex
Pivot Points help traders identify market reversals. With Pivot Points, traders can predict the support and resistance levels of a currency pair to make entry and exit decisions.
Keltner Channel is a technical indicator that provides traders with strong continuation signals and trend directions by assessing a currency pair's price volatility.
Leading vs Lagging Indicators
Leading and lagging indicators help traders measure the future and current performance of a currency pair, respectively. These indicators can help make successful trading decisions.
What is Relative Strength Index?
Relative Strength Index (RSI) helps traders understand how frequently the currency pair prices change in the forex market to predict the future market prices.
Wide Ranging Bars
Wide Ranging Bars are strong momentum indicators that help traders understand the market direction and identify ideal entry and exit points.
Harmonic Price Patterns in Forex
Harmonic Price Patterns allow traders to predict future price movements and trend reversals to make ideal entry and exit decisions in the Forex market.
Double tops and bottoms
Double Tops and Double Bottoms chart patterns help traders identify solid bullish and bearish trend reversals in the Forex market, and in turn, find the ideal market entry and exit points.
Falling and Rising Wedges
When you are trading currency pairs in the Forex market, it is essential to know when the market can possibly reverse. The Falling and Rising Wedges pattern help identify market reversal signals and accurate market entry and exit points.
Forex Scalping Strategy
Scalping refers to trading currency pairs in the Forex market based on real-time analysis. With Forex scalping, you hold a position for a very short period and close once you see a profit opportunity.
Symmetrical Triangle Pattern
Symmetrical Triangle Patterns help identify market breakdowns (price fall) and breakouts (price rise), and in turn, help you plot the entry and exit prices for profitable Forex trading.
Introduction to Technical Analysis in Forex
Technical analysis in Forex trading provides you with significant market trends, reversals and fluctuations and in turn helps you long and short term trades.
Trading breakouts and fakeouts
Breakout and fakeout trading enable traders to take positions in rising and falling markets.
Fundamental Analysis in Forex Trading Explained
Fundamental analysis in Forex trading is one of the several methods you can use to determine the relative security and intrinsic value of a nation’s currency.
8 Top Commodity Trading Strategies
Commodity trading is one of the best ways to diversify your portfolio and protect yourself from losses incurred due to inflation.
What is a Doji Candlestick?
The Doji Candlestick is a pattern used in technical analyses of trend reversals in a market.
Moving Average: The Complete Guide
Moving Average is used in Forex trading to compare the current currency pair pricing and where it stands with respect to the current average pair prices.
What is Volatility Index (VIX) and How Do You Trade It?
One of the most popular trading markets in the world, the foreign exchange market allows investors to make quick money by trading currencies.
Forex Profit Calculator
On average, a Forex trader can make anywhere between 5 to 15% of the initial amount they invested in the market.
Understanding markets gaps and slippage
The foreign exchange rate reveals valuable details about particular currencies a trader wishes to trade-in.
What is a pip in forex?
When trading in the Forex market, you need to have a close eye on two currencies at the same time. PIP helps you denote the change in a currency pair’s value.
Introduction to Order Types in Forex
Forex has different order types which allow traders to automate entering and exiting positions.
Using orders to manage risk
Forex risk management includes a robust set of rules and regulations that protect you against Forex's negative impacts.
Managing risk in 7 steps
Risk management in Forex is essential to individuals, groups of individuals, and organizations since it enables them to implement measures that help mitigate Forex risk and its negative impact.
Bullish and Bearish Flag Patterns
Blueberry Markets discusses why it is essential to study the bullish and bearish flag patterns in Forex. Learn more.
Master risk management and
become an expert forex trader.
Move on to the advanced course.
Guide to Forex
Enter your details to get a copy of our
Start a risk free
News & Analysis
Catch up on what you might
have missed in the market.