How Do You Analyze Forex Divergence Trading & Trade Divergence Setups in Trading?
How Do You Trade Forex Divergence Trading & Trade Divergence Setups in Trading?
Divergence Forex Definition - Divergence forex trading is one of the forex trading setups used by Forex traders. Divergence forex trading involves looking at a forex chart & one more forex indicator. For our divergence forex examples we shall use the MACD forex indicator.
To spot this forex trading divergence setup find two chart points at which forex price makes a new swing high or a new swing low but the MACD indicator does not, indicating a forex trading divergence between forex price and momentum.
To look for divergence forex trading signal we look for 2 chart points, two highs which form an M shape on the Forex trading chart or 2 lows that form a WShape on trading chart. Then look for same M shape or W Shape on Forex trading indicator that you use to forex trade - for examples RSI indicator, MACD indicator or Stochastic Oscillator indicator.
Example of a Forex Divergence Trade Setup:
In the forex chart below we spot two chart points, point A & point B (swing highs). These 2 chart points form an M shape on forex price chart.
Then using MACD indicator we check highs made by MACD technical indicator, these are highs that are directly below forex Chart points A & B.
We then draw one line on the Forex trading chart & another line on the MACD indicator.
Drawing Divergence Trading Lines
The forex chart above shows example of one of the four types of forex trading divergence setup, one above is known as hidden bearish forex divergence. Types of forex trading divergence set ups are covered in the next learn forex trading lesson.
How Do You spot divergence forex trading setup?
In order to spot Forex divergence signal we look for following:
- HH - Higher High - two highs but the last one is higher
- LH - Lower High - two highs but the last one is lower
- HL - Higher Low - two lows but the last one is higher
- LL - Lower Low - two lows but the last one is lower
First let us look at the illustrations of these divergence forex trading terms:
M shapes on forex charts dealing with forex price Highs
W Shapes on forex charts dealing with forex price lows
Example of M Shapes on Forex Charts
Examples of W Shapes on Forex Charts
Now that you have learned the divergence forex trading terms which are used to explain divergence forex trading set-up. Let us look at the two types of forex trading divergences and how to forex trade these forex divergence forex chart setups.
The two forex divergence types which are:
- Classic Forex Trading Divergence
- Hidden Forex Trading Divergence
These two forex trading divergence set ups - classic divergence trading & hidden divergence trading are described on the learn forex tutorials in the forex lessons tutorials on this learn forex trading website located at the navigation menu under the topics learn forex trading lessons.
How Do I Analyze Forex Divergence Trading & Trade Divergence Setups in Trading?
