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The best divergence trading strategy is the one which uses trend continuation divergences. In this video you will be shown you how to identify hidden divergences and how to use them to trade with the trend. Using a divergence trading strategy will help you have a higher win rate overall.
*This divergence indicator is not to be used for live trading because the signal shows up late. This divergence indicator is to be used for back testing to learn how to identify hidden divergences and regular divergences. Please do not use this indicator for live trading because your entry will be wrong. Use this as a tool to learn how to spot them live.* Divergences are used by traders in an attempt to determine when a trend is getting weaker, that may lead to a trend reversal or continuation. Before you head out there and start looking for potential divergences, here are nine rules for trading divergences. In order for a divergence to exist, the price must have either formed one of the following: When not, you ain’t trading a divergence. You are just imagining things. Immediately go see your optometrist and get some new glasses. Divergence Trading Rule #1: Yes there must be extreme highs and lows Divergence Trading Rule #2: No Divergences do not work in ranging markets. 2. Draw lines on successive tops and bottoms Okay now that you got some action (recent price action that is), look at it. Now draw a line backward from that high or low to the previous high or low. It HAS to be on successive major tops/bottom. 3. Connect TOPS and BOTTOMS only Once you see two swing highs are established, you connect the TOPS. When two lows are made, you connect the BOTTOMS. Divergence Trading Rule #3: Connect successive tops or bottoms only Divergence. Trading Rule #3: Divergences do not work in ranging markets. 4. Keep Your Eyes on the Price So you have connected either two tops or two bottoms with a trend line. Now look at your preferred technical indicator and compare it to price action. Whichever indicator you use, remember you are comparing its TOPS or BOTTOMS. Divergence Trading Rule #4: Focus on tops and bottoms 5. Be Consistent With Your Swing Highs and Lows When you draw a line connecting two highs on price, you MUST draw a line connecting the two highs on the indicator as well. When you draw a line connecting two lows on price, you MUST draw a line connecting two lows on the indicator. They have to match! |
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