What if you knew of a way to take full advantage of a trend? What if you knew how to sell near the peaks and valleys of a trend with little to no risk involved?
What if you understood the perfect place to get out of a long position and instead of sitting around while your profits vanish before your eyes – along with your dream of owning that shiny new Ferrari – you actually took charge of your money and started making the gains that you have been looking for?
What if your gut is telling you that a currency pair is going to keep falling but you want to have more proof and a better price to start at?
Believe it or not, all of that is possible! It can be achieved with a method known as divergence trading. A divergence can be tracked by comparing a currency’s price movement and the changes in an indicator. Any indicator can be used, so it is advisable to use the one that you are most comfortable with.
The really nice thing about a divergence is that it is easy to spot and can be used to indicate future price changes. A divergence is a leading indicator.
After you master using divergences, you can use them to make consistent profits. Since divergences work near the highs or lows of a currency price, there is very little risk involved.
The Oscillator and the Price Stick Together
Just remember that the Oscillator and the Price stick together.
Normally, price and momentum stick together like peanut butter and jelly, Bert and Ernie, Peaches and Cream . . . well, you get what I’m saying.
As the price continues to go up to larger and larger highs, the oscillator should follow along. As the price dips down to new lows, the oscillator should follow along with that too. If, however, the oscillator is not sticking with the price, then you know something is up. When the oscillator strays away from the price, it is diverging from it. That is how you get a divergence.
Understanding how divergences work is a great way to improve all of your future trades. By looking out for divergences, you’ll understand that something weird is going on.
Divergences are often present at a point when a trend is weakening or getting ready to turn around. There are even times when it will tell you that a trend is going to keep going in the same direction.
Two different types of divergences exist:
Standard divergences and hidden divergences.
Over the course of this grade, you will learn about both of these divergences and what to do with them. You will even be presented with a cool surprise if you make it all the way to the end.
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