How Do You Analyze Forex Divergence Trading & How to Trade Divergence Setups in Trading?
How Do You Trade FX Divergence Trading & Trade Divergence Setups in Trading?
Divergence Forex Definition - Divergence currency trading is one of the trading setups used by the traders. Divergence forex involves looking at a chart & one more indicator. For our divergence illustrations we shall use MACD indicator.
To spot this trade divergence find 2 chart points at which price makes and forms a new swing high or a new swing low but the MACD doesn't, indicating a trade divergence between price & momentum.
To search for divergence trading signal we look for 2 chart points, two highs which form an M shape on the FX trading chart or 2 lows that form a W Shape on chart. Then look for same M shape or W Shape on Forex trading indicator that you use to trade - for examples RSI indicator, MACD or Stochastic Oscillator.
Explanation of a Divergence Trading Setup:
In the chart below we spot two chart points, point A and point B (swing highs). These 2 chart points form an M shape on price chart.
Then using MACD we check highs made by MACD indicator, these are highs that are directly below Chart points A and B.
We then draw one line on the Forex chart & another line on the MACD.
Drawing Divergence Lines
The chart above highlights illustration of one of the 4 types of trade divergence setup, one above is referred to as hidden bearish divergence. Types of trade divergence set ups are discussed in the next learn forex trading lesson.
How Do You spot divergence trading setup?
In order to identify divergence signal we look for following:
- HH - Higher High : two highs but the last is higher
- LH - Lower High : 2 highs but last one is lower
- HL - Higher Low - two lows but last one is higher
- LL - Lower Low - two lows but the last is lower
First let us look at the illustrations of these divergence forex trading terms:
M-shapes on charts dealing with price Highs
W Shapes on the charts dealing with price lows
Explanation of M shapes on fx Charts
Examples of W-Shapes on fx Charts
Now that you as a trader 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 currency trading divergences & how to trade these divergence chart setups.
The two divergence types that are:
- Classic Trading Divergence
- Hidden Forex Trading Divergence
These two trade divergence set ups - classic divergence trading & hidden divergence trading are described on the learn forex tutorials in the lessons tutorials on this learn forex trading website located at the navigation menu under the topics learn forex trading lessons.
How Do You Analyze/Interpret Forex Divergence Trading & Trade Divergence Setups in Trading?
More Lessons:
- Setting Up Forex MACD EA
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- Bulls Power Automated Bot EA EA
- True Strength Index (TSI) MetaTrader 5 Trading Analysis
- Demark Projected Range Analysis
- Forex Awesome Oscillator EA Setup
- How to Set Coppock Curve on Chart
