The chart above shows how the MACD histogram forms lower lows

zzam26

After closing the reversal bar below the trend, we open a short position. With a blue line we mark the entrance to the market. We place the stop loss just above the nearest local maximum (red line). To set the profit we will use take profit , equal to two stops (green line). Afterwards, the graph goes down and we fix the profit. Bullish divergence The classic Forex bullish divergence is an excellent reversal signal. As with the bearish divergence, we will use the intersection of the trend line to enter the market. LiteFinance: What is Forex Divergence?  Divergence and convergence: theory and practice of application |  Litefinance The chart above is an ideal example for such a signal. The price is in a downtrend. After a long time we see a cascade of two consecutive regular bullish divergences. To better appreciate, he marked them with different colors. We will talk more about this phenomenon.The solution is a combination of reversal signals with other indicators and trading strategies, we will talk about it later.


We place the stop loss just above the first vertex of the formed convergence (red line). The chart above shows that take profit at a double stop value is crossed by the price and closes our trade with a profit. Hidden bullish divergence This signal is reflected by the previous one and also indicates the continuation of the trend, only upward. LiteFinance: What is Forex Divergence?  Divergence and convergence: theory and practice of application |  Litefinance , while the Peru Mobile Number List  price chart is in an uptrend. The hidden bullish divergence is marked with blue segments. As in the previous case, we expect a false change in trend.  For now we only consider this fact as a strong sign of reversal. When using a trend line, it is also important to know how to construct it correctly. In our example, for a downtrend, the line starts from the first trend peak to the last highest local peak. In the case of the uptrend on the previous chart, there was the same approach, but only the line was built under lows. Let's go back to our example. After the close of the first candle above the trend line, open long. On the graph he marked this with a blue horizontal line. As in the previous example, we place the stop loss just below the last local low. Take profit is equivalent to two stops. LiteFinance: What is Forex Divergence?  Divergence and convergence: theory and practice of application |  Litefinance It is important to note that the "double stop" method is not always effective. In our case, the closing of the transaction with profit had to wait a whole month.



LiteFinance: What is Forex Divergence?  Divergence and convergence: theory and practice of application |  Litefinance The graph above shows this classic case. We see a hidden bearish divergence, where the indicator highs rise despite the price peaks (marked with blue segments). After such a signal, we expect a false trend reversal. To define the moment to enter the market, we use moving averages MACD, that is, its crossing of the zero mark from top to bottom. Usually, the MACD moving out of the positive zone is interpreted as a trend reversal, however, considering the hidden bearish divergence, we expected a false breakout of this level and upon returning to the negative zone we opened a short position. Its main peculiarity is that the signal is advanced. Its confirmation can be obtained a posteriori, with the corresponding market movement. In general, any indicator signal, price action, chart or wave pattern, which confirms the veracity of the price movement or advanced divergence signals, can be considered a confirmation. Divergence and reversal Reversal, as a trading concept, refers to the change in direction of movement. In technical analysis, reversals are of utmost importance as they allow traders to profit on a new trend. A reversal can occur after a divergence, when the indicator signals a change in market sentiment. Also a reversal can occur after reaching a key level or when the price crosses the boundaries of the trend line.  In trading, it is convenient to apply it to enter the trend after a failed reversal.