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!
Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice. Urbanforex will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.<7p>
Editors’ Picks
EUR/USD hits two-day highs near 1.1820
EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY drops back below 157.00, as focus shifts to Japan snap election
USD/JPY is back in the red below 157.00 in the Asian session on Friday. The Japanese Yen recovers ground against the US Dollar amid some profit-taking ahead of Japan's snap general election on Sunday. The preliminary reading of the Michigan Consumer Sentiment Index report for February will be released later on Friday.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates Premium
The EUR/USD pair lost additional ground in the first week of February, settling at around 1.1820. The reversal lost momentum after the pair peaked at 1.2082 in January, its highest since mid-2021.
Gold: Volatility persists in commodity space Premium
After losing more than 8% to end the previous week, Gold (XAU/USD) remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000.
GBP/USD: Pound Sterling tests key support ahead of a big week Premium
The Pound Sterling (GBP) changed course against the US Dollar (USD), with GBP/USD giving up nearly 200 pips in a dramatic correction.
Bitcoin: The worst may be behind us
Bitcoin (BTC) price recovers slightly, trading at $65,000 at the time of writing on Friday, after reaching a low of $60,000 during the early Asian trading session. The Crypto King remained under pressure so far this week, posting three consecutive weeks of losses exceeding 30%.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
RECOMMENDED LESSONS
Making money in forex is easy if you know how the bankers trade!
I’m often mystified in my educational forex articles why so many traders struggle to make consistent money out of forex trading. The answer has more to do with what they don’t know than what they do know. After working in investment banks for 20 years many of which were as a Chief trader its second knowledge how to extract cash out of the market.
5 Forex News Events You Need To Know
In the fast moving world of currency markets where huge moves can seemingly come from nowhere, it is extremely important for new traders to learn about the various economic indicators and forex news events and releases that shape the markets. Indeed, quickly getting a handle on which data to look out for, what it means, and how to trade it can see new traders quickly become far more profitable and sets up the road to long term success.
Top 10 Chart Patterns Every Trader Should Know
Chart patterns are one of the most effective trading tools for a trader. They are pure price-action, and form on the basis of underlying buying and selling pressure. Chart patterns have a proven track-record, and traders use them to identify continuation or reversal signals, to open positions and identify price targets.
7 Ways to Avoid Forex Scams
The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?
What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.
The challenge: Timing the market and trader psychology
Successful trading often comes down to timing – entering and exiting trades at the right moments. Yet timing the market is notoriously difficult, largely because human psychology can derail even the best plans. Two powerful emotions in particular – fear and greed – tend to drive trading decisions off course.