Chart #3 | weekly EUR/USD hidden divergence with Stochastic Pipruit: Well. I think I’ll better stay with MACD for divergence estimation. Still, I understand that if we use some normalized oscillator we have to wait for accomplishment of these major rules: 1. Wait for lines crossover at close of bar to confirm divergence; 2. Wait for when the oscillator will come out from oversold/overbought area; 3. It’s preferable if divergence forms when the oscillator not at an oversold or overbought area; 4. And, final common rule – be careful with divergences in free space. Divergence that forms at some strong support/resistance area and confirmed by patterns and oversold/overbought indicators is much more reliable. Commander in Pips: Yes, absolutely. Pipruit: Commander, I just want to ask you one more thing. Could you please specify some rules of drawing and recognizing divergences? Probably I should have asked it in the beginning of this chapter but forgot to do it… Commander in Pips: Oh, right. Let’s do it: 1. Divergence could exist only if market forms: - Higher highs; - Lower lows; - Double top; - Double bottom; It’s no sense to break your eyes watching on indicator, till that happens. Also, these tops/bottoms have to be easily defined. So, if you will see something like that – this is not the precedent for divergence: Chart #4 | 5-min EUR/USD - do not ever search for divergence is such environment 2. If you see well defined tops or bottoms - draw the line that links it from right to left. If you see some bumps, deeps, choppy and sloppy price action as on chart #4 - ignore it. 3. If market makes higher highs – link the highs, if market creates lower lows – link the lows. Don’t mess it up pal! 4. Once you’ve linked price tops/bottoms – take a look at indicator. Here your major interest is tops/bottoms of indicator. Ignore all other price action! 5. You have to link the same extremes on indicator as on price chart. If you have linked on price chart tops – so do the same on indicator. Bottoms – connect indicators bottoms.