How to trade <<Divergence>> in the market?
Hello, friends! I have prepared a very important and informative post for You. I hope you'll like it♥️
Let's talk about Divergence🧐
The word divergence comes from the Latin "divergere" - divergence, deviation. Divergence is a situation when the movement of the indicator doesn't match the movement of the price.
Usually, divergence happen when, for example, the market has reached some new levels, but the indicator cannot reach its previous values. Or, the opposite situation is possible, when the market dropped below a certain level at which it stopped earlier, while the indicator can't reach its previous value.
This situation indicates, that the latest market movement is not reliable and is not supported by a large number of participants. So, almost always, after such a breakout in the market, either a reversal or a flat, or it can be a short-term stop followed by a continuation of the trend.
There are two main types of divergence:
Bearish. When there is a higher price high with a lower high of the indicator. In this case, a down trend reversal is likely.
Bullish. When the level is a lower price low with a higher low on the indicator. In this case, we forecast a trend reversal upward.
What is the practical significance of divergence?
What is the practical significance of divergence?
In practice, it allows you to exit the market in a situation when, with long-term growth, we see the threat of a reversal. Divergence tells you exactly where this movement should start.
This allows you to enter the market on time and exit on time. This signal is so significant, that even if a trader uses only fundamental analysis and doesn't use indicators, needs to start at least one oscillator to watch the divergence.
Thus, the appearance of a divergence may indicate the end of the current movement. Usually, the appearance of a divergence may indicate the end of the price movement and a possible strong price reversal or correction.
Divergence is an important and strong signal. As with other patterns and signals, the higher timeframe, the more likely it is!
Now let's talk about classes of Divergence
Class A Divergence
The weakest type of divergence. Talking about a slow, gradual reversal.
In the case of a bearish divergence, the indicator shows a lower high at a new high on the chart. For a bullish, on the contrary - we see a new price low with a higher low on the indicator.
❌It's not recommended to open trades on such a signal; it's better to wait for additional confirmation.
Class B Divergence
The price forms a double top, while the indicator shows a lower high - that's true for a bearish divergence. For bullish - we see a double bottom on the chart and the indicator shows a higher low.
Class C Divergence
The weakest species. Usually formed in a volatile market. ❌It's better to avoid such signals.
If the price creates a higher high, and the indicator shows a double top, it's a bearish divergence C. If the chart shows a lower low, when the indicator shows a double bottom, it's a bullish divergence C.
Hidden Divergence
In addition to the types of divergence discussed above👆🏼, there is also a hidden one. It's even more effective than those listed above, although it appears quite rarely. Enter on such a signal only in the direction of the current trend.📌
If you see a lower price high with a higher high of the indicator, it is a bearish hidden divergence. It is true for a bullish to find a higher low on the chart with a lower low on the indicator.
What conclusions can we draw?
🔸The presence of a Divergence often, but not always, means a trend reversal💡
🔸Divergence is a relative signal that depends on the chart time frame, and the the type and indicators.
🔸It will not be possible to determine the ideal entry moment, therefore it is necessary to use also other indicators and patterns.
🔸This strategy works in theory on all instruments, but in practice it is suitable for those that tend to long-term trends without corrections.
If You have any questions - I'm waiting for You in the comments)
Stay in touch with me💋
Always sincere with You🧡
Your Rocket Bomb🚀💣
Let's talk about Divergence🧐
The word divergence comes from the Latin "divergere" - divergence, deviation. Divergence is a situation when the movement of the indicator doesn't match the movement of the price.
Usually, divergence happen when, for example, the market has reached some new levels, but the indicator cannot reach its previous values. Or, the opposite situation is possible, when the market dropped below a certain level at which it stopped earlier, while the indicator can't reach its previous value.
This situation indicates, that the latest market movement is not reliable and is not supported by a large number of participants. So, almost always, after such a breakout in the market, either a reversal or a flat, or it can be a short-term stop followed by a continuation of the trend.
There are two main types of divergence:
Bearish. When there is a higher price high with a lower high of the indicator. In this case, a down trend reversal is likely.
Bullish. When the level is a lower price low with a higher low on the indicator. In this case, we forecast a trend reversal upward.
What is the practical significance of divergence?
What is the practical significance of divergence?
In practice, it allows you to exit the market in a situation when, with long-term growth, we see the threat of a reversal. Divergence tells you exactly where this movement should start.
This allows you to enter the market on time and exit on time. This signal is so significant, that even if a trader uses only fundamental analysis and doesn't use indicators, needs to start at least one oscillator to watch the divergence.
Thus, the appearance of a divergence may indicate the end of the current movement. Usually, the appearance of a divergence may indicate the end of the price movement and a possible strong price reversal or correction.
Divergence is an important and strong signal. As with other patterns and signals, the higher timeframe, the more likely it is!
Now let's talk about classes of Divergence
Class A Divergence
The weakest type of divergence. Talking about a slow, gradual reversal.
In the case of a bearish divergence, the indicator shows a lower high at a new high on the chart. For a bullish, on the contrary - we see a new price low with a higher low on the indicator.
❌It's not recommended to open trades on such a signal; it's better to wait for additional confirmation.
Class B Divergence
The price forms a double top, while the indicator shows a lower high - that's true for a bearish divergence. For bullish - we see a double bottom on the chart and the indicator shows a higher low.
Class C Divergence
The weakest species. Usually formed in a volatile market. ❌It's better to avoid such signals.
If the price creates a higher high, and the indicator shows a double top, it's a bearish divergence C. If the chart shows a lower low, when the indicator shows a double bottom, it's a bullish divergence C.
Hidden Divergence
In addition to the types of divergence discussed above👆🏼, there is also a hidden one. It's even more effective than those listed above, although it appears quite rarely. Enter on such a signal only in the direction of the current trend.📌
If you see a lower price high with a higher high of the indicator, it is a bearish hidden divergence. It is true for a bullish to find a higher low on the chart with a lower low on the indicator.
What conclusions can we draw?
🔸The presence of a Divergence often, but not always, means a trend reversal💡
🔸Divergence is a relative signal that depends on the chart time frame, and the the type and indicators.
🔸It will not be possible to determine the ideal entry moment, therefore it is necessary to use also other indicators and patterns.
🔸This strategy works in theory on all instruments, but in practice it is suitable for those that tend to long-term trends without corrections.
If You have any questions - I'm waiting for You in the comments)
Stay in touch with me💋
Always sincere with You🧡
Your Rocket Bomb🚀💣
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💰 I'm using Bybit and I highly recommend it to You
bybit.com/invite?ref=7X0W2A
Boost Your TV account🚀
tradingview.com/pricing/?share_your_love=RocketBomb
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