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Chapter 18, Part II. Trading Divergences. Page 6

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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    Chart #4 | 60-min EUR/USD What is it?
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    The other situation is very similar. Bearish DP forms, when trend turns bullish, but price action does not support it and remains flat, or even moves downward. This could lead to further acceleration of the down move, hence we should search for a possibility to go short.

    Pipruit: And what the target of DP?
    Commander in Pips: Well, in general DP is not a pattern, but more as indicator, the same as divergence. It just lets us see something different, that do not see other traders. But, minimum target is previous extremes. DP could lead to just clear out of previous extremes. But sometimes it could be initial indicator of trend continuation. So that has happened on chart #4.

    Pipruit: And what is a foundation of this indicator, why does it work like that?
    Commander in Pips: Well, it is very simple. It comes from MACD math. If price stays flat for a while after a strong move up, it forces MACD to turn south. Those people who blindly follow to MACD take this signal and enter short with stops placed just above the current sideway range. But if they pay attention to price action also, they could note that price action does not support that trend shifting. Hence, bulls are stronger that they seem, because they do not allow bears to push the market lower. When bears’ force is exhausted, because they are much lesser than bulls – the market continues move up and trend shifts up again. The public appears to be trapped in a wrong position. Their stops add fuel to further the move up.

    Pipruit: Wow! Cool!​
     
    #1 Sive Morten, Dec 21, 2013
    Lasted edited by : Apr 16, 2016
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