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Chapter 18, Part II. Trading Divergences. Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 21, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    But if you see divergence somewhere in “free space” when the market has no barriers to continue move further and you see nothing more – do not rely on it, especially if the trend holds strong against divergence. This is absolutely insufficient to take a countertrend position in this scenario.

    Pipruit: Thanks, Sir. I will also think about that.
    Commander in Pips: Ok, let’s pass to some examples.

    Chart #1 | 60-min EUR/USD
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    Let’s start from common Bearish Divergence on an hourly EUR/USD chart. On that day, the market has hit daily overbought and stands between 0.618 and 0.786 Fib resistance. So, as we’ve said we have some additional resistance conditions and not just hourly divergence.

    Applying rules in the beginning of this part, we may act as follows:

    1. Initially our attention was attracted to second top of potential divergences. We do not see yet, that this is the head of larger H&S pattern, so as small H&S pattern;

    2. Since the market moves down from the head of small H&S we have a confirmation from MACD – lines have crossed. This gives us confirmation of divergence and shift of the trend to bearish;

    3. We’ve said, that divergence is not a signal, this is just a confirmation that probably a situation is turning to bearish, but still we do not have sufficient context to enter short;

    4. When the initial pullback from the head of small H&S has finished – we could suspect that this probably will be H&S, hence we need some pullback to enter. Also it gives us clear area to place astop and what to watch in general:

    - We need to see harmony in the H&S pattern. Hence, the right shoulder of small pattern should be around 0.618-0.786 retracement level from the head.

    - Since our context for entering is the small H&S, we have to place stop just above the head.
     
    #1 Sive Morten, Dec 21, 2013
    Lasted edited by : Apr 16, 2016
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