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Divergence Trading Using Stochastics

Divergence is a popular tool used by traders to find high probability trade setups. Divergence is simply a disagreement between the price movement and the indicator movement. For example, if the price action is moving up while the indicator is moving down, it is a divergence. Similarly, if the indicator is moving up and the price action is moving down, it is again a divergence. The indicator used in divergence trading are the MACD, Stochastics, RSI etc. In this article, we will discuss how to trade divergences using Stochastics.

Now, keep this in mind that divergence on a daily chart is quite different than the divergence on the weekly chart. Divergence on the daily chart means that the price will make a short term counter trend move in the next one to five days.

But a divergence taking place on the weekly charts means something more powerful. It means an intermediate trend change, something more powerful than a short term counter trend move on the daily charts.

Now, when a divergence takes place either on the daily chart or the weekly chart, it does not mean that the trend change will take place immediately. You can't simply buy and sell on spotting a divergence.

But when %K line changes direction but is unable to cross the %D line before changing its direction back to the original direction, ignore this signal.

And in case, you are not in a trade and you spot a divergence developing on the weekly charts, get ready to enter into a trade in the direction that the divergence is predicting the major retracement.

Whatever, you should master trading divergences.

As soon as you spot a divergence on the daily or the weekly chart, get out of any position that you are in on the first best opportunity.

Mr. Ahmad Hassam has done Masters from Harvard University. Master these profitable Forex Patterns and download Magic Forex Divergence FREE. Get this award winning Forex Trading System FREE that made 1,306.5% in 1 month of live trading competition.



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