How to Interpret Classic Bullish Divergence Trading Signal & Bearish Divergence
Classic divergence is used as a signal for a possible forex trend reversal and classic divergence is used by traders when they are looking for an area where forex price could reverse and start moving in the opposite direction. For this reason forex traders Interpret this classic divergence signal as a low risk forex entry method and as an accurate way of exiting out of a forex trade.
This classic divergence strategy is a low risk method to sell near the market tops or buy near the market bottoms, this makes the risk on your forex trades small relative to the potential reward. However, this is classic divergence strategy is one method with very many forex whipsaws and most traders do not recommend using this strategy.
Classic Divergence in Forex Trading is also used to predict the optimum level at which to exit a forex trade. If you already have an open forex trade that's already profitable, a good way to identify a profit taking level would be the area where you spot this classic trading divergence setup.
There are 2 types of classic divergence trading setup - based on the direction of the market trend:
- Classic Bullish Forex Divergence
- Classic Bearish Forex Divergence
How Do I Analyze Classic Bullish Divergence Trading Signal Trading Signal?
Forex classic bullish divergence setup occurs when price is making lower lows - LL, but the indicator is making higher lows - HL. The classic trading divergence example below explains this setup.
Classic Bullish Forex Divergence
This classic trading divergence example uses MACD indicator as a forex divergence trading technical indicator.
From the above classic divergence example - the forex price made a lower low - LL but the indicator made a higher low - HL, this shows there is a divergence signal between the forex price and the forex indicator. This classic divergence signal warns of a possible forex trend reversal.
Classic bullish divergence signal warns of a possible reversal in forex trend from downwards trend to upwards trend. This is because even though the forex price went lower the volume of sellers that moved the forex price lower was less as is shown by the MACD indicator. This signals the underlying weakness of the downwards forex trend.
How Do I Analyze Classic Bearish Divergence Signal Trading Signal?
Classic bearish divergence forex trading set up occurs when price is making a higher high - HH, but the indicator is making a lower high - LH. The classic bearish divergence forex trading example below explains this setup.
How Do I Analyze Classic Bullish Divergence Trading Signal & Classic Bearish Divergence Signal?
This classic bearish forex divergence trade setup example also uses MACD indicator
From the above example the forex price made a higher high - HH but the indicator made a Lower High - LH, this shows there is a divergence signal between the forex price and the forex indicator. This classic forex bearish divergence signal warns of a possible forex trend reversal.
Classic bearish divergence signal warns of a possible change in forex trend from upwards trend to downwards trend. This is because even though the forex price went higher the volume of buyers that moved the forex price higher was less as illustrated by the MACD indicator. This classic bearish divergence signal shows underlying weakness of the upwards forex trend.
In the example above, if you as a trader had used divergence forex trading strategy to trade you would have generated good forex trading signals to enter or exit the forex trades at optimal points. However, forex divergence signals just like other forex indicators, is also prone to forex whipsaws - that is why it's always good to confirm the divergence forex trading signals with other technical forex indicators such as a Moving Averages & RSI forex trading technical indicators.
How Do I Analyze Classic Bullish Divergence Trading Signal & Classic Bearish Divergence Signal in Forex?
