FOREX Chart Of The Day: Divergence In The Forex Market Explained

In this video, we explain the divergence in the forex market and how you can add it to your trading toolbox.

Normal bullish divergence forms when the price is making lower lows but the oscillator (e.g. RSI, MACD, or Stochastic) is forming a higher low. This can lead to a reversal in the market.

We typically look for hidden divergence in trending markets. It is when the price is making higher lows but the oscillator forms a lower low. This can be seen as a bullish continuation opportunity.

Today, we’re going to discuss normal and hidden divergence.

Normal Bullish Divergence

A normal bullish divergence forms when the price forms lower lows, but the oscillator forms a higher low. This tells us that the momentum may be ending, and a reversal will likely happen.

In this chart, the price forms a lower low but the RSI indicator forms a higher low, and the market reverses. This isn’t always the case, though. It needs to be used in confluence with other factors such as supply and demand. This is only showing us that the sellers’ momentum is fading and we could see a shift in the trend soon.

The price forms a lower low, but the RSI forms a higher low; we get a reversal in the market as seen in the chart above.

Hidden Bullish Divergence

Moving on to bullish hidden divergence, we typically look for this in a trending market. It forms when the price forms higher highs and higher lows as it normally would, but the oscillator forms a lower low. This can be seen as a bullish continuation opportunity.

Looking at the chart below, the market is making higher highs and higher lows, but the RSI is making a lower low. The price then rallies in line with the trend.

In a trending market, the price is making higher lows, but the oscillator forms a lower low. This shows a hidden divergence, which is an opportunity for the trend to continue.

Divergence can be a great tool to add to your trading toolbox, but must be used with other confluences.

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About The Author

Jonathan Kibbler

Jon Kibbler, our Senior Market Analyst, boasts over a decade of trading experience. He specializes in dissecting the intricacies of financial markets and sharing his expertise with precision. Jon’s insights have been featured at renowned events and platforms like Coindex, Forex Analytix, and Forex.com.

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