FOREX THEORY
Divergence Trading
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,
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. It doesn’t
really matter what indicator you use. You can use RSI, MACD, the 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
consistently 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 are very small relative to your potential reward.
Cha-ching!
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