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Chapter 18, Part I. Divergence Intro.

Discussion in 'Complete Trading Education- Forex Military School' started by Administrator, Oct 13, 2011.

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  1. Administrator

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    Part I. Divergence Intro. [​IMG]
    Pipruit: Commander does there exist some tool that with solid probability allows us either to sell on top or to buy on bottom?​

    Commander in Pips: There is some. It calls Divergence/Convergence. Although this signal you can meet very often on market, it demands a proper approach to its trading. Because acting based on it blindly often will lead to losses rather than to profit.

    [​IMG]

    Pipruit: I remember something that you’ve told about it earlier, but just slightly. Could you specify a bit more, what is divergence?
    Commander in Pips: Well, to determine divergence or convergence, you have to use chart with some indicator. Most commonly are used RSI, MACD, and Stochastic sometimes. Personally, I use MACD. The major idea is that most time price action and its momentum based on some indicator move together. It means that both price and indicator creates new highs and lows simultaneously. But sometimes, price on the chart makes new highs/lows but the indicator does not support that, so they diverge from each other – that’s why it is called divergence.

    Pipruit: And what is Convergence?
    Commander in Pips: Well it’s absolutely the same. The point is that divergence appears on tops, when price creates new high but the indicator does not. So it looks like price and the indicator diverge from each other. But on bottoms, when price creates a new low and the indicator is not, it looks like price and indicator converge each other. Very often as on tops as on bottoms this kind of price action is called divergence. The difference uses mostly to accent on the nature of divergence – divergence is a bearish pattern, while Convergence is bullish. So, if somebody speaks about Convergence, it means that this is bullish divergence on a bottom.
     
    #1 Administrator, Oct 13, 2011
    Lasted edited by : Apr 15, 2016
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