Fores Trading Secrets-Trade Divergence

Divergence is a simple Forex trading strategy that can make you consistent profits if used properly. Divergence essentially refers to the price action gauged against an oscillator indicator such as Stochastic, RSI, CCI, or MACD. Divergences are employed as leading indicators, since they provide early warning signals that the market is about to change direction. A major advantage of using divergences in Forex trading is that trades are usually executed near the bottom or near the top; thus, there is less risk in comparison to potential reward. Divergence trading can be applied in both bull and bear market.
The main aim of divergence traders is to see higher highs and lower lows forming on the charts. When the price of a currency pair is making higher highs, then the oscillator ought also to be forming higher highs, and if the price is making lower lows, then the oscillator ought to be forming lower lows. And, if this is not taking place, then it implies that the oscillator and the price of the currency are diverging from one another. This is what is termed as "divergence". Therefore, divergence is an invaluable technique for identifying a weakening trend or an imminent change in trend.
There are two types of divergence: regular and hidden. Regular divergence is normally employed in spotting trend reversals. For example, if the price of a currency pair is forming lower lows in a downtrend but the oscillator is forming higher lows, then this is regarded as regular bullish divergence, and price is expected to start climbing the charts. On the other hand, hidden divergence is normally employed in spotting trend continuation. For example, if the price of a currency pair is forming higher lows in an uptrend but the oscillator is forming lower lows, then this is regarded as hidden bullish divergence, and price is expected to start rising.
Just like any other strategy in Forex trading, divergence cannot be used alone. It is possible for divergence sometimes to give false signals; therefore, combining them with another strategy will greatly minimize the risk of loss while trading. Trading decisions should not solely be based on this strategy. Importantly, divergences do not take place very regularly in the Forex market, so if you spot any, you should maximize on the opportunity. If you are able to grasp this simple Forex trading strategy, you will make massive profits in the business of trading currencies.