What if there was a low-risk way to sell near the top or buy near the bottom of a trend?

What if you were already in a long position and you could know ahead of time the perfect place to
exit instead of watching your unrealized gains, a.k.a your potential Aston Martin down payment or
future Christian Louboutin high heels, vanish before your eyes because your trade reverses
direction?

What if you believe a currency pair will continue to fall but would like to short at a better price or a
less risky entry?

Well, guess what? There is a way!

It’s called divergence trading.

In a nutshell, divergence can be seen by comparing price action and the movement of an indicator.

Divergence

It doesn’t really matter what indicator you use.

You can use RSI, MACD, Stochastic, CCI, etc.

The great thing about divergences is that you can use them as a leading indicator, and after some
practice, it’s not too difficult to spot.

When traded properly, you can be profitable with divergences.

The best thing about divergences is that you’re usually buying near the bottom or selling near the
top.

This makes the risk on your trades very small relative to your potential reward.

Cha-ching!
Divergence Trader

Trading Divergences

Just think “higher highs” and “lower lows“.

Price and momentum normally move hand in hand like avocado and toast, Hansel and Gretel, Ryu
and Ken, Batman and Robin, Jay Z and Beyonce, Kobe and Shaq, salt and pepper…You get the point.

Trading Divergences in Forex

If the price is making higher highs, the oscillator should also be making higher highs. If the price is
making lower lows, the oscillator should also be making lower lows.

If they are NOT, that means price and the oscillator are diverging from each other. And that’s why
it’s called “divergence.”

Divergence trading is an awesome tool to have in your toolbox because divergences signal to you
that something fishy is going on and that you should pay closer attention.

Using divergence trading can be useful in spotting a weakening trend or reversal in momentum.
Sometimes you can even use it as a signal for a trend to continue!

There are TWO types of divergence:

Regular

Hidden

In this grade, we will teach you how to spot these divergences and how to trade them.

We’ll even have a sweet surprise for you at the end.

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Regular Divergence

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High School

Trading Divergences

Regular Divergence

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English

Partner Center

What is a regular divergence?

A regular divergence is used as a possible sign for a trend reversal.

There are two types of regular divergences: bullish and bearish.

Regular Bullish Divergence

If the price is making lower lows (LL), but the oscillator is making higher lows (HL), this is considered
to be regular bullish divergence.

This normally occurs at the end of a DOWNTREND.

After establishing a second bottom, if the oscillator fails to make a new low, it is likely that the price
will rise, as price and momentum are normally expected to move in line with each other.

Below is an image that portrays a regular bullish divergence.

Regular Bullish Divergence

Regular Bearish Divergence

This type of divergence can be found in an UPTREND.

After price makes that second high, if the oscillator makes a lower high, then you can probably
expect the price to reverse and drop.

In the image below, we see that the price reverses after making the second top.

Regular Bearish Divergence

As you can see from the images above, the regular divergence is best used when trying to pick tops
and bottoms.

You are looking for an area where the price will stop and reverse.

The oscillator signals to us that momentum is starting to shift and even though the price has made a
higher high (or lower low), chances are that it won’t be sustained.

Now that you’ve got a hold on regular divergence, it’s time to move and learn about the second type
of divergence….hidden divergence.

Don’t worry, it’s not super concealed like the Chamber of Secrets and it’s not that tough to spot.

The reason it’s called “hidden” is that it’s hiding inside the current trend.