Classic Bullish vs Classic Bearish Divergence - Forex Classic Divergence Setups
forex classic divergence is used as a possible signal for a Forex trend reversal and is used by traders to analyze price movement and identify areas where the price could reverse and start going in the opposite direction. Forex classic divergence setup is used as a low risk entry method when opening a forex trade or when exiting a forex trade.
Classic divergence forex trading strategy is a low risk technique to sell near the market top or buy near the market bottom, this makes the trading risk on your trades are to be small relative to the potential reward. However, this classic divergence forex strategy is one technique with very many whipsaws & most traders do not recommend using it.
Divergence in Forex Trading is also used to predict the optimum point at which to exit an open forex trade. If you already have an open forex trade that is already profitable, a good method to identify a profit taking level would be to use the point where you spot this divergence forex trading setup.
There are two types of classic divergence, based on the direction of the current Forex trend:
- Classic Bullish Forex Trading Divergence
- Classic Bearish Divergence
Classic Bullish Divergence Forex Divergence - Classic Divergence Trading Setup
Forex classic bullish divergence forms when FX price is forming lower lows (LL), but the indicator is making higher lows (HL). The divergence forex example below shows classic trading divergence setup.
Forex Trading Classic Bullish Divergence - Forex Classic Divergence Trading Setups
This forex divergence example uses MACD indicator as a forex trading divergence indicator.
From the above forex divergence scanner example the forex price made a lower low(LL) but the MACD indicator made a higher low(HL), this shows there is a divergence between the forex price & the MACD indicator. This divergence forex signal warns of a possible forex trend reversal.
Classic bullish divergence forex trading signal warns of a possible reversal in forex trend from downward trend to upward trend - because even though the forex price went lower the volume of sellers that moved the price lower was less as shown by the MACD technical indicator. This divergence forex signal indicates underlying weakness of the downward forex trend.
Classic Bearish Divergence - Forex Divergence Classic Divergence Setup
Forex classic bearish divergence forms when FX price is forming a higher high (HH), but the indicator is forming a lower high (LH). The forex divergence scanner example below shows an example of the classic bearish forex divergence forex trading setup.
Forex Trading Classic Bearish Divergence - Forex Classic Divergence Trading Setups
This divergence scanner forex example also uses MACD indicator
From the above example the forex price made a higher high(HH) but the MACD indicator made a Lower High(LH), this shows there is divergence between the forex price & the MACD indicator. This divergence forex signal warns of a possible forex trend reversal.
Classic bearish divergence forex signal warns of a possible reversal in the forex trend from upward trend to downwards trend - this is because even though the forex price went higher the volume of buyers that pushed the forex price higher was less as illustrated by the MACD indicator. This signals underlying weakness of the upwards trend.
In the example above, if you as a trader had used divergence setup to trade you would have gotten good signals to enter or exit the trades at an optimal point. However, divergence forex trading signals just like other forex indicators, is also prone to whipsaws. That is why it's always good for forex traders using this setup to confirm the divergence forex trading signals with other indicators such as RSI, Stochastic Oscillator & Moving Averages.
An good forex indicator to combine divergence forex trading signal with is the moving average technical indicator, in this moving average trading indicator a trader should use the Moving Average Crossover System - Moving Average Crossover Forex System & Divergence Forex Trading
Example of Moving Average Crossover Strategy
Once the divergence forex signal is given, a trader will then wait for the Moving average crossover forex trading system to give a forex trading signal in the same direction of the forex divergence signal, if there is a classic bullish divergence signal, a trader will wait for the moving average crossover forex trading strategy to give an upward crossover forex signal, while for a bearish classic divergence forex trading signal the trader will wait for the Moving average crossover forex trading strategy to give a downward bearish crossover forex trading signal.
By combining the forex classic divergence trading signals with other technical forex indicators this way, a trader will be able to avoid forex whipsaws when it comes to trading the classic divergence forex signals, because the trader will wait until the forex trend has actually reversed & is already moving toward the direction of the divergence trade setup, hence the trader will not fall into the trap of picking market tops & market bottoms.
