Trade Forex Trading

Learn Forex Lessons, Strategies and Technical Analysis


Classic Bearish - HH price, LH indicator - Indicates underlying weakness of a trend - Warning of a possible change in the trend from up to down.


Classic Bullish - LL price, HL indicator - Indicates underlying weakness of a trend - Warning of a possible change in the trend from down to up.


Hidden Bearish - LH price, HH indicator - Indicates underlying strength of a trend - Mainly found during corrective rallies in a downtrend.


Hidden Bullish - HL price, LL indicator - Indicates underlying strength of a trend - Occurs mainly during corrective declines in an uptrend.


Illustrations of the divergence terms:

M-shapes dealing with price highs




W-shapes dealing with price lows

W-Shapes price lows - forex divergence strategy trading



These are the shapes to look for when looking for when using these setups.

One of the best indicator for this setup is the MACD Indicator - as a Forex signal MACD divergence is a high probability setup to enter a trade. But as with any signal there are certain precautions that have to be observed to make this signal a high probability setup. Getting straight in to a trade as soon as you see this setup is not the best strategy. This setup should be used in combination with another technical indicator to confirm the direction of the currency trend. A good system to combine with is the moving average crossover system.


Be aware this setup on a smaller time frame is not so significant. When divergence is seen on a 15 minute chart it may or may not be very important as compared to the 4 hour chart time-frame on MetaTrader 4 platform.


Regulated Broker

Tight Spreads, EURUSD - 0.1 Pips, GBPUSD - 0.1 Pips, USDJPY - 0.1 Pips: Choose Zero Spreads Account


If seen on a 60 minute chart, 4 hour chart, or daily chart time-frame, then start looking for other factors to indicate when the price may react to the divergence.


This brings us to a key point when using this signal to enter a trade: on a higher time frame MACD divergence can be a fairly reliable indicator of a change in price direction. However, the big question is: WHEN? That is why getting straight in to a trade as soon as you see this setup is not always the best strategy.


Many investors get caught out by entering the market too soon when they see MACD divergence. In many cases, price has still got some momentum to continue in the current direction. The investor who has jumped in too soon can only stare at the screen in dismay as price shoots through his stop loss taking him out.


If you simply look for this setup without any other considerations you will not be aligning yourself with the best odds, so to increase the odds of making a successful trade you should also look at other factors, specifically other indicators.



What other factors should you consider when using this setup?

1. Support, Resistance and Fibonacci levels on higher time-frames

Another way to greatly increase the odds of a winning trade is to observe the higher chart time frames before opening an order based on the lower time frames.


If you observe that the hourly, 4 hour or daily Forex chart has met a major resistance, support or Fibonacci level then the probability of a successful trade based on divergence on a lower time frame at this point increases.


2. Reward to risk ratio

And finally, when looking for divergence, it is very important that you enter the trade correctly, so that you have a good risk/reward ratio and only open transactions that have more profit potential than what you are risking. If you understand how to enter a transaction properly, you can measure your risk/reward before you open a transaction. That way, you can only choose to open orders that offer a favorable ratio.

Finally, when used correctly and combined with other technical indicators to confirm this signal, divergence setup can offer huge profit potential.

Save more on spreads, stop paying 2 pips spreads and trade with the Zero Spreads Account, pay 0.1 pips spread on EURUSD, 0.1 pips spread on GBPUSD and 0.1 pips spread on USDJPY.

Click on a Seminar To Find Out More Details About Events

Poland FX Seminar Gala

XM Account Holders Attend Poland FX Seminar

XM Account Holders Hungary Seminar

Malaysia Seminar

XM Account Holders Thailand Seminar

European Forex Broker XM is Regulated in 13 Countries; 11 European Countries, Australia and New Zealand

Regulated Forex Broker

Australia Regulated Forex Broker

How a Real Forex Account Looks Like

How A Real Forex Trading Account Looks Like

XMP Forex Loyalty Bonus Program

Loyalty Bonus Points - Up To $6.67 Dollars Bonus For Every Lot Traded

Forex Trading Accounts Members Area - Withdraw and Deposit Options

Real Forex Trading Account Withdraw and Deposit Options

Up To $6.67 Dollars Bonus for Every Lot Traded

Forex Loyalty Bonus Program

Open Forex Account Early, Takes Only 5 Minutes: Register Now

$5,000 Forex Bonus

Silver and Gold Online Trading

Tight Spreads, EURUSD - 0.1 Pips, GBPUSD - 0.1 Pips, USDJPY - 0.1 Pips: Choose Zero Spreads Account

Regulated Broker


Privacy Policy