Trading Price Oscillator Divergences

Divergences are considered to be an important arsenal in the trading toolkit of a pro trader. Divergence happens when price moves in one direction and the indicator moves in the opposite direction. Now any oscillator can be used to show divergence patterns. The most commonly used oscillators include RSI, Stochastics, MACD, CCI, ROC and Williams %R. However, any oscillator can show divergence with price action. Divergence can be regular or hidden. Regular divergence can be bullish or bearish.

In case of Bullish Regular Divergence prices make a lower low while the oscillator makes a higher low whereas in case of Bearish Regular Divergence price makes a higher high while the oscillator makes a lower high. Appearance of a divergence pattern means a loss in momentum and trend reversal or consolidation. When this pattern appears take it seriously as it warns of a potential turning in the market.

The case of hidden divergence is the exact opposite of the regular divergence. Hidden divergence tells of the trend continuation. There are two type of hidden divergences, bearish and bullish. In Bullish Hidden Divergence, the oscillator makes lower low while the price action makes a higher low whereas in the bearish hidden divergence, oscillator makes a higher high while price action make a lower high. The appearance of a hidden divergence pattern means trend continuation. Hidden divergence is considered to be a far stronger trading signals as compared to the regular divergence.

It is not difficult to spot these divergence patterns. You can use a Divergence Pattern Recognizer Indicator that can tell you about the appearance of a regular or a hidden divergence. However, keep this in mind that you need indicators to make entry and exit signals. Divergence can only confirm trend reversal or trend continuation. Try these Forex Signals by two top gun traders in a friendly competition. Discover these Forex Binary Options System that can give a return as high as 400% in just 1 day.