Today I will talk about how to trade divergence correctly. I do not pretend to be true and I share only the best practices that help me make money in the Forex market. Before we move on to a detailed discussion, I would like to acquaint you with my view of the market and tell you about those things, the understanding and successful application of which will allow you to become profitable traders.
What is the Marketplace?
Initially, the stock exchange was created to buy and sell goods, food, raw materials.
Then speculators appeared, making deals with only one purpose - to make money on the difference between buying and selling. The introduction of futures (a contract for the supply of goods at a predetermined price and at a certain time) made it easier to conduct trading operations. First, they bought futures from direct producers and sold to consumers, then they entered into deals with each other. And the more people wishing to gain fame in this field appeared, the more liquid the market became. It got to the point that all transactions on the exchange were carried out only between speculators. Today, speculators are called traders, however, the specifics of earnings have not changed at all - they are still trying to buy something completely unnecessary for them, in order to resell it later at a better price.
So we come to the main question: " How to do this? "
There are a number of techniques for determining pivot points, and they are all based on looking for patterns or imbalances.
In this case, we will operate with such concepts as overbought or oversold. Because Most often, overbought is accompanied by a rapid growth of the asset, then it can be recognized on the charts of trading instruments using oscillators. I recommend using the indicator developed by Bill Williams - Awesome Oscillator (AO). I liked it most of all, because it is possible to identify the appearance of a divergence within a few seconds without any difficulty.
Key point: when the asset is overbought, the price of the asset turns out to be higher than it can be explained using fundamental factors. And divergence is the divergence of the price indicator and the oscillator. Those. during the next update by the hi / low price, the hi / low indicator is not updated.
Thus, during an abundance of positive news, the price of an asset may rise significantly, but at the same time it will not be overbought and the emerging divergences will not be worked out for a long time. And then, instead of a deep pullback, the divergence will be discharged in a narrow horizontal channel and the growth will continue.
How do you trade then?
In addition to using technical analysis, you should pay attention to fundamental factors. For example, before the start of the stimulus policy by the ECB and the curtailment of the quantitative easing program by the FRS, the euro strengthened against the dollar. During important news, the hi was updated once again, collected the stops of sellers, buy-throughs, formed a bearish divergence and collapsed the euro. Then the market ignored several bullish divergences, which appeared in places where there were no signs of oversold. the value of the euro was fully consistent with the fundamental factors (the Fed rate hike and the launch of the ECB printing press).
An additional important factor in favor of working out the divergence will be its formation near a strong level or the emergence of the "Wedge" pattern. If we trade on H1, then the level should be on TF H4 or D1.
For example, in the figure below, the Eurodollar reversed near the mirrored level of 1.1085 after a bullish divergence was formed on the 4-hour chart.
D1. Mirror level.
H4. Decrease in price after the formation of a bearish divergence.
The following example shows the conditions under which the divergence is considered discharged or worked out. Those. after crossing the histogram of the zero mark, you need to close the purchase.
How to increase the number of profitable trades and where to place orders to limit losses?
It is best to wait for the third extremum to appear. This pattern is known to us as "3 Indians". Place the stop loss a few points above it or according to the rules of this pattern. We fix the profit when crossing the zero mark or according to the rules of this pattern. I draw your attention to the fact that the deal must be transferred to a second-hand one after the divergence is released, since the chances of completing the rollback and resuming the original movement increase.
The position can be recruited in stages as new extremes appear. We place one common stop, which we place behind the strong level identified on the higher timeframe.
Why do divergences work?
Any trend ends sooner or later. Some time after the price growth, a moment comes when the upward movement gradually fades: the number of those who want to take profits and open sales increases, buyers begin to pull stops as close as possible to the current price. Now supply prevails over demand and the very first bearish impulse breaks the bullish stops - an avalanche-like closing of long positions begins, which provokes a new wave of sales. As a rule, after the discharge of the divergence, the process stops, but in some cases, with the support of fundamental factors, the discharge of the divergence is the beginning of a new trend.
Here is one of the most effective ways to enter the stage of trend inception.
What is the Marketplace?
Initially, the stock exchange was created to buy and sell goods, food, raw materials.
Then speculators appeared, making deals with only one purpose - to make money on the difference between buying and selling. The introduction of futures (a contract for the supply of goods at a predetermined price and at a certain time) made it easier to conduct trading operations. First, they bought futures from direct producers and sold to consumers, then they entered into deals with each other. And the more people wishing to gain fame in this field appeared, the more liquid the market became. It got to the point that all transactions on the exchange were carried out only between speculators. Today, speculators are called traders, however, the specifics of earnings have not changed at all - they are still trying to buy something completely unnecessary for them, in order to resell it later at a better price.
So we come to the main question: " How to do this? "
There are a number of techniques for determining pivot points, and they are all based on looking for patterns or imbalances.
In this case, we will operate with such concepts as overbought or oversold. Because Most often, overbought is accompanied by a rapid growth of the asset, then it can be recognized on the charts of trading instruments using oscillators. I recommend using the indicator developed by Bill Williams - Awesome Oscillator (AO). I liked it most of all, because it is possible to identify the appearance of a divergence within a few seconds without any difficulty.
Key point: when the asset is overbought, the price of the asset turns out to be higher than it can be explained using fundamental factors. And divergence is the divergence of the price indicator and the oscillator. Those. during the next update by the hi / low price, the hi / low indicator is not updated.
Thus, during an abundance of positive news, the price of an asset may rise significantly, but at the same time it will not be overbought and the emerging divergences will not be worked out for a long time. And then, instead of a deep pullback, the divergence will be discharged in a narrow horizontal channel and the growth will continue.
How do you trade then?
In addition to using technical analysis, you should pay attention to fundamental factors. For example, before the start of the stimulus policy by the ECB and the curtailment of the quantitative easing program by the FRS, the euro strengthened against the dollar. During important news, the hi was updated once again, collected the stops of sellers, buy-throughs, formed a bearish divergence and collapsed the euro. Then the market ignored several bullish divergences, which appeared in places where there were no signs of oversold. the value of the euro was fully consistent with the fundamental factors (the Fed rate hike and the launch of the ECB printing press).
An additional important factor in favor of working out the divergence will be its formation near a strong level or the emergence of the "Wedge" pattern. If we trade on H1, then the level should be on TF H4 or D1.
For example, in the figure below, the Eurodollar reversed near the mirrored level of 1.1085 after a bullish divergence was formed on the 4-hour chart.
D1. Mirror level.
H4. Decrease in price after the formation of a bearish divergence.
The following example shows the conditions under which the divergence is considered discharged or worked out. Those. after crossing the histogram of the zero mark, you need to close the purchase.
How to increase the number of profitable trades and where to place orders to limit losses?
It is best to wait for the third extremum to appear. This pattern is known to us as "3 Indians". Place the stop loss a few points above it or according to the rules of this pattern. We fix the profit when crossing the zero mark or according to the rules of this pattern. I draw your attention to the fact that the deal must be transferred to a second-hand one after the divergence is released, since the chances of completing the rollback and resuming the original movement increase.
The position can be recruited in stages as new extremes appear. We place one common stop, which we place behind the strong level identified on the higher timeframe.
Why do divergences work?
Any trend ends sooner or later. Some time after the price growth, a moment comes when the upward movement gradually fades: the number of those who want to take profits and open sales increases, buyers begin to pull stops as close as possible to the current price. Now supply prevails over demand and the very first bearish impulse breaks the bullish stops - an avalanche-like closing of long positions begins, which provokes a new wave of sales. As a rule, after the discharge of the divergence, the process stops, but in some cases, with the support of fundamental factors, the discharge of the divergence is the beginning of a new trend.
Here is one of the most effective ways to enter the stage of trend inception.
تبصرہ
Расширенный режим Обычный режим