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Chapter 18, Part II. Trading Divergences. Page 4

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

    Aug 28, 2009
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    On chart #3 is just one of the possible approaches to trading this situation:

    Chart #3 | 60-min EUR/USD trading hidden bullish divergence

    Here we have to note that daily trend is bullish. As we can see from chart #2 market is in upward parallel channel. Hence we have to search way to enter long.

    When we see divergence – we can’t enter, since we have no signal yet. A bit later we see that the hourly trend has turned bullish – MACD confirms divergence by lines’ crossing and simultaneously confirms the channel’s support. But after that, the upward move was fast and usually you can’t jump on it in time. Hence, we need some pullback to enter. When the market has taken out previous highs – it has turned to retracement. Our choice here is 0.382-0.50 support, because this is also a previous high. If the market will move below 1.4350 it will mean that this breakout was probably a fake one. Second – our preferable scenario is when the bullish trend holds. Hence, if we will wait for deeper retracement we will get an unattractive scenario – the trend will turn bearish and the market will move below previous highs. In that case our bullish context will be negated by price action.

    As a result we have only one way to enter - at 0.382-0.50 support. Stop placement could be different. It depends on your target and position value. But most safe stop is below support of the parallel channel line.

    As you can see, here we apply all the knowledge that we already have – buying deeps and not just jump in, wait for confirmation of the trend and daily trend and use classical support/resistance lines as well as channel trading. Place of divergence here is only as a confirmation but not a reason for trading. That is the proper way to use it.

    Pipruit: Well, I suppose I understand what you’re talking about in this approach to divergences. But, let me ask you a cunning question:

    Look at the same chart but a bit to right from our entry:

    Chart #4 | 60-min EUR/USD What is it?
    According to your previous analysis, we should exit here, because trend has shifted bearish, right?​
    Commander in Pips: No, because this stuff calls Market or Dynamic Pressure
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