Divergences is one of few - if not the only - indicators that can be used as a leading indicator. It will take some practice, but after a while they are not so difficult to spot. When you know how to trade divergences you really have an extra edge in your toolbox.
How to Trade Divergences
When after watching the videos above you know how to trade divergences, you can be very consistently profitable with them. And the best thing about divergences is that you’re very often buying from the bottom and selling from the top. This makes the risk on your trades are very small relative to your potential reward.
The Potential in Divergence
Knowing how to trade divergences can provide you with a real extra edge. It is a very powerful early indicator of trend reversals and works really well in combination with another trading system. Divergence is, however, not fool proof and you need to educate yourself on more than just this. On its own divergence will often give you some false positives. So use it with your knowledge of reading the market or with another strategy. As often mentioned; trading forex is an odds game and you want to put the odds to in your favour as much as you can.
Final Words
As with any trading strategy, you should be using stops to limit the risk. Limiting your risk and protecting your account is key to have long term growth. Also, just like in any strategy or indicator it is important to know why an indicator behaves like this. Why does the price move from there? And answering "simply because the indicator indicates as such", is not good enough. The price reacts from that area, because that specific level has some importance. Find out why, use it with price action and know what you're trading.
Watch the video above for the full lesson so you can continue to enhance your skills and be better everyday.
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Editors’ Picks
EUR/USD hovers around 1.0700, eyes on US first-quarter GDP data
EUR/USD hovers around the 1.0700 psychological level on Thursday during the early Asian session. The modest uptick of the major pair is supported by the softer US Dollar. Later in the day, Germany’s GfK Consumer Confidence Survey for April will be released.
GBP/USD snaps the two-day winning streak above 1.2450, eyes on US GDP data
The GBP/USD pair snaps the two-day winning streak near 1.2460 amid the modest rebound of the US Dollar on Thursday during the early Asian session. The release of the US Gross Domestic Product for the first quarter will take center stage on the day.
USD/JPY finds its highest bids since 1990, approaches 156.00
USD/JPY broke into its highest chart territory since June of 1990 on Wednesday, peaking near 155.40 for the first time in 34 years as the Japanese Yen continues to tumble across the broad FX market.
Editors’ Picks
AUD/USD posts gain, yet dive below 0.6500 amid Aussie CPI, ahead of US GDP
The Aussie Dollar finished Wednesday’s session with decent gains of 0.15% against the US Dollar, yet it retreated from weekly highs of 0.6529, which it hit after a hotter-than-expected inflation report. As the Asian session begins, the AUD/USD trades around 0.6495.
USD/JPY finds its highest bids since 1990, approaches 156.00
USD/JPY broke into its highest chart territory since June of 1990 on Wednesday, peaking near 155.40 for the first time in 34 years as the Japanese Yen continues to tumble across the broad FX market.
Gold stays firm amid higher US yields as traders await US GDP data
Gold recovers from recent losses, buoyed by market interest despite a stronger US Dollar and higher US Treasury yields. De-escalation of Middle East tensions contributed to increased market stability, denting the appetite for Gold buying.
Ethereum suffers slight pullback, Hong Kong spot ETH ETFs to begin trading on April 30
Ethereum suffered a brief decline on Wednesday afternoon despite increased accumulation from whales. This follows Ethereum restaking protocol Renzo restaked ETH crashing from its 1:1 peg with ETH and increased activities surrounding spot Ethereum ETFs.
Dow Jones Industrial Average hesitates on Wednesday as markets wait for key US data
The DJIA stumbled on Wednesday, falling from recent highs near 38,550.00 as investors ease off of Tuesday’s risk appetite. The index recovered as US data continues to vex financial markets that remain overwhelmingly focused on rate cuts from the US Fed.
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