One of the most reliable and easy to understand trading tools, must be divergence. It's an indicator that you can use as a leading indicator. It might even be the only indicator you can use as such, as opposed to the other ones that can only be used as a lagging indicator. Divergence is a crucial part of many trading systems that some of the best traders out there use. If it fits your trading style and personality, it can be well worth it to look into mastering the art of trading divergence.
Divergence literally means 'to separate'. And this is what you want to be looking for. You can spot it by looking at the price action and comparing it to the movement of the indicator. The basic idea is that divergence gives you a heads up of decreased momentum. This will still be hidden and can be an indicator of an upcoming reversal. As you could see in the video above we are taking it to the next level in this post. So you better have a solid understanding of the basics.
Divergence in Trading Strategies
There are plenty of strategies that lean heavily on the tool that divergence is. Some of the best strategies that we use at Urban Forex is divergence. If these strategies are applied consistently and if their rules are strictly being followed, these strategies can be very powerful. When we are trading divergence at Urban Forex we often use one of these strategies: CCI Divergence Breakout Strategy, Pivot Points MACD Divergence Strategy and Prediction Cycles with Divergence. These strategies have proven themselves and are great examples of how powerful divergence can be.
So the key thing here - that will separate you from the 95% of losing traders - is how you combine the divergence with a solid strategy.
Successful Trading
Trading divergence is very powerful, but you should only use it as a tool to indicate trading opportunities. So certainly do not use it as a buy or sell signal. To gain a real edge in the market, all the successful traders always combine whichever tool they use with a strategy and their read. This way using it as a tool as part of a strategy, trading divergence can really help you find those high probability entries. And this in turn will help you become consistent and confident in your trading and help you reach your goals.
Successful trading is a numbers game and comes down to making better trading decisions than the losing 95%. Using divergence as part of your trading system, can give you a great edge over the losing guy on the other side.
Watch the video above for the full lesson so you can continue to enhance your skills and be better everyday.
#UrbanForex - Be conscious of your trading!
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Editors’ Picks
AUD/USD: The hunt for the 0.7000 hurdle
AUD/USD quickly left behind Wednesday’s strong pullback and rose markedly past the 0.6900 barrier on Thursday, boosted by news of fresh stimulus in China as well as renewed weakness in the US Dollar.
EUR/USD refocuses its attention to 1.1200 and above
Rising appetite for the risk-associated assets, the offered stance in the Greenback and Chinese stimulus all contributed to the resurgence of the upside momentum in EUR/USD, which managed to retest the 1.1190 zone on Thursday.
Gold holding at higher ground at around $2,670
Gold breaks to new high of $2,673 on Thursday. Falling interest rates globally, intensifying geopolitical conflicts and heightened Fed easing bets are the main factors.
Bitcoin displays bullish signals amid supportive macroeconomic developments and growing institutional demand
Bitcoin (BTC) trades slightly up, around $64,000 on Thursday, following a rejection from the upper consolidation level of $64,700 the previous day. BTC’s price has been consolidating between $62,000 and $64,700 for the past week.
RBA widely expected to keep key interest rate unchanged amid persisting price pressures
The Reserve Bank of Australia is likely to continue bucking the trend adopted by major central banks of the dovish policy pivot, opting to maintain the policy for the seventh consecutive meeting on Tuesday.
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