Divergence Trader Strategies

Divergence Trader Strategies is one of the trade set-ups used by Stocks traders. It involves looking at a stocks chart and one more stocks indicator. For our examples we shall use the MACD indicator.

To spot this divergence trader strategies find two chart points at which stocks price makes a new swing high or a new swing low but the MACD indicator does not, indicating a divergence between stocks price & momentum.

To look for Divergence trader strategies we look for two chart points, two highs that form an M-shape on the Stocks Trading chart or two lows that form a W-Shape on the Stocks Trading chart. Then look for the same M-shape or W-Shape on the Stocks indicator you use to trade.

Example of a Stocks Trading Divergence Trade Strategies:

In the Stocks Trading chart below we spot two chart points, point A & point B (swing highs). These two points form an M-shape on the stocks price chart.

Then using MACD technical indicator we check the highs made by the MACD, these are the highs that are directly below Chart points A and B.

We then draw one line on the Stocks Trading chart & another line on the MACD technical indicator.

Drawing Divergence Stocks Lines - Divergence trader strategies

The Stocks chart above shows an example of one of the four types of divergence trader strategies, the one above is known as hidden bearish divergence strategy, one of the best type to trade.

How to spot divergence trader strategies

In order to spot Stocks Divergence trader strategies we look for the following:

• HH=Higher High- two highs but the last one is higher
• LH= Lower High- 2 highs but the last one is lower
• HL=Higher Low- 2 lows but the last one is higher
• LL= Lower Low- 2 lows but the last one is lower

First let us look at the illustrations of these divergence setup trading terms:

M-shapes dealing with Stocks price Highs

Divergence trader strategies

W Shapes dealing with Stocks price lows

Divergence trader strategies

Example of M Shapes

Divergence trader strategies

Examples of W Shapes

Divergence trader strategies

Now that you have learned the Divergence trader strategies terms which are used to explain trading setup. Let us look at the 2 types of Stocks Trading divergences & how to trade these divergence trader strategies setups.

There two types are:

1. Classic divergence trader strategies

2. Hidden divergence trader strategies

These 2 setups are the most oftenly used divergence trader strategies & these are described on the stocks strategies section of this website.