Momentum Divergence in Forex

An ailment that many traders suffer from when they are in a live trading environment is called "analysis paralysis," where you are trying to take in too much information in deciding when to trade and in which direction, and you either overload your charts with indicators that you don't fully understand or you try to read every single piece of news on your news feed and try to determine what it means. In all areas of life people will encounter problems when they try to overcomplicate things, and so the solution to this for your trading is to find a trading strategy that is simple and logical, and will not give you a headache or make you feel paralyzed and unable to act. One such strategy is called "momentum divergence," and all you need is one indicator on your price chart.
The first step is to pick the currency pair and the time frame that you are comfortable trading with. Some people like to use short-term charts and hold open positions for 5 minutes to 2 hours, while other like to hold their trades open for 2 hours to 2 days or longer. Your personal preference will determine what the time frame on your chart will be. After you are settled on a specific chart to find signals from, you will want to add a momentum indicator called a "stochastic oscillator" which will be displayed below the active price data and should come standard with every charting package out there nowadays. This is a purely technical analysis-based strategy, so you will not be needing your newsfeed or economic calendar for this.
A momentum indicator measures the rate at which prices are moving now relative to the rate at which prices have been moving in the recent past, and the result is an indicator which tells you whether current market conditions are overbought or oversold. The reason this can be such an important thing to know is because the foreign exchange market is not exchange based; in an exchange-based market such as futures or commodities you can have access to price volume data, but there is no way to compile this data on the Forex market so the closest thing is a momentum indicator. Typically the momentum indicator will move in sync with the price data itself, so the line drawn by the actual chart and the line on the oscillator should match up closely.
The reason this strategy is called "momentum divergence" is because you can identify trading signals by finding those times when the price data does not correspond with the oscillator graph. The term "divergence" refers to those times when prices move opposite of momentum, which means that prices continue to rise even though momentum has started to fall or momentum is rising and the price is still falling or moving sideways. As you might understand by now, since a momentum indicator is the next-best-thing to price volume information, when there is a change in momentum but no change in price it can tell you beforehand whether the exchange rate is likely to go up or down.
To use this strategy you will want to follow your chart and look for one of two setups: Either the price is continuing to rise but momentum is falling, or the price continues to fall but momentum is rising. Your entry signal will be when you have identified a setup where you feel thst there is a large move in the price momentum that has not yet been translated into actual price movement, and your exit signal will be when you see the indicator exit overbought or oversold territory.
The oscillator itself conveys a value of 0-100, where over 80 usually indicates overbought and below 20 usually indicates oversold. If you decided to buy the currency pair because you saw momentum on the rise but no change in the price level, you would want to set a reasonable stop-loss and then hold the position until you see it cross into overbought territory and sustain the upward movement, and then exit when the oscillator crosses back down over the 80 mark. If you decided to sell the currency pair, then you would follow the same process and wait for the signal where you see the momentum moving lower but no change in the price. Then you would hold until the oscillator goes below 20 into oversold territory to continue the price movement and then exit when it crosses back above the 20 mark.

3 Simple Technical Analysis

First you must understand the basics of Candlestick Charting and Technical Analysis. We will not go into a detailed explanation here, for our purposes it is important to understand and recognize the use of the Hammer and Inverted Hammer. Always using the following candle for confirmation, these can be used as indicators of a change in direction.
Second, we add Bollinger Bands with a Moving Average (MA). These can be used to measure the highness or lowness of the price relative to previous trades. Bollinger Bands consist of:

• a middle band being an N-period simple moving average (MA)
• an upper band at K times an N-period standard deviation above the middle band (MA+K*sigma)
• a lower band at K times an N-period standard deviation below the middle band (MA-K*sigma)

On most charting systems the default values for N and K are 20 and 2, respectively. Similarly, the same period is used for both the middle band and the calculation of standard deviation. This is where you will replace the value of K from 2 to 2.5. I know this may seem like a common change to utilize but you would be amazed at how few traders actually make this change and opt for the standard values. By changing the value of K from 2 to 2.5 you are providing for a broader range, which will give you a more meaningful reading of direction and momentum.Finally, we add the Relative Strength Index (RSI). The Relative Strength Index (RSI) is a financial technical analysis momentum oscillator measuring the velocity and magnitude of directional price movement by comparing upward and downward close-to-close movements. The divergence between RSI and price action is a very strong indication that a market turning point is imminent. Bearish divergence occurs when price makes a new high but the RSI makes a lower high, thus failing to confirm. Bullish divergence occurs when price makes a new low but RSI makes a higher low.
My suggestion for meaningful technical trading is very simple...to utilize the RSI at the entry levels of "30" and "70" and the exit levels of "60" and "40". This is guaranteed to lead to more accurate and technically sound trading opportunities. And will also help to take some of the hesitancy out of your trading decisions.

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.

Using Bollinger Bands in a Trending Strategy

One of the best forex indicators is Bollinger Bands. They are very simple to use, they are free, and they are extremely reliable. At just a glance, you can tell if the market is trending or stuck in a range. You can tell if the market has hit extreme prices or if it is about to explode.
So I want to show you a simple trading strategy that relies heavily on Bollinger bands. And, oh yeah, it makes pretty good income from forex!
Identifying a trending market with Bollinger bands is very simple. If the market is trending up, price will walk up the upper band. If the market is trending down, price will walk down the lower band.
Bollinger bands plot a moving average in the middle, and the extreme bands are formed by standard deviation lines around that moving average. Now don't be scared by the algebraic term standard deviations. You don't have to know how to calculate them - the indicator does that by itself.
Normally, the standard deviation for Bollinger bands is set at 2. For this strategy, you want to change it to 1. Just go into the settings of the Bollinger indicator and change the number 2 to 1. This will help you identify trading opportunities better.
Now that you have changed the standard deviation, you will notice that the extreme bands are now closer to the moving average. This is exactly what you want.
Now look for any candle that closes outside the bands. When you see this, enter a trade in the direction of the closing candle. Your stop loss will go on the other side of the candle.
So, in an uptrend, you will place your stop below the candle that closed above the upper band. In a downtrend, you will place your stop above the candle that closed below the lower band.
Your take profit should be twice as much as your stop loss. For example, if your stop loss is 25 pips, then your take profit would be 50 pips.
Pretty simple, right? Not hard at all, and that is the way most profitable trading strategies are - simple.