News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bullish
Oil - US Crude
Bearish
Wall Street
Bearish
Gold
Bearish
GBP/USD
Bullish
USD/JPY
Bullish
More View more
Real Time News
  • The New Zealand Dollar is not a major I've been talking about frequently of late, but it is carving out one of the most impressively consistent trends among the standard FX crew. Impressive $NZDUSD weekly technicals and COT net spec positioning: https://t.co/PzxFCCiMm2
  • Forex Update: As of 21:00, these are your best and worst performers based on the London trading schedule: 🇳🇿NZD: 0.39% 🇨🇭CHF: 0.31% 🇬🇧GBP: 0.20% 🇦🇺AUD: 0.07% 🇯🇵JPY: -0.03% 🇨🇦CAD: -0.07% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/MTHtFXyiUS
  • A weekly chart of crude oil looks favorable for bulls, but this four-week charge has some serious fundamental headwinds in the headlines. Reports that even OPEC is concerned about the commodity's outlook https://t.co/w7mioBXi8o
  • 🇳🇿 Balance of Trade (OCT) Actual: N$-1M Previous: N$-1017M https://www.dailyfx.com/economic-calendar#2020-11-25
  • Commodities Update: As of 21:00, these are your best and worst performers based on the London trading schedule: Silver: 0.27% Oil - US Crude: 0.17% Gold: -0.14% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/qGMTFE8HeL
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 94.67%, while traders in EUR/USD are at opposite extremes with 74.23%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/BOpeubJFYh
  • Heads Up:🇳🇿 Balance of Trade (OCT) due at 21:45 GMT (15min) Previous: N$-1017M https://www.dailyfx.com/economic-calendar#2020-11-25
  • USD/CAD is trading into the key support at the objective yearly open – looking for a reaction down here. Get your $USDCAD technical analysis from @MBForex here: https://t.co/3fFRjsjLYM https://t.co/EllLEN3yG2
  • Indices Update: As of 21:00, these are your best and worst performers based on the London trading schedule: FTSE 100: 0.04% France 40: 0.03% US 500: -0.03% Wall Street: -0.04% Germany 30: -0.10% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/B3IpY9dzzL
  • German Chancellor Angela Merkel announces lockdown measures to be extended until 20 December $EUR $EURUSD $DAX
Mastering Market Divergence

Mastering Market Divergence

2016-12-13 16:29:00
Walker England, Forex Trading Instructor
Share:

Talking Points:

  • Divergences Occur When Prices Separate From an Indicator
  • Traditional Divergence May Help Pinpoint Market Reversals
  • Hidden Divergence May Help Pinpoint Market Retracements

At first glance, traders may be inclined to use oscillators, such as RSI and MACD, only for their crossovers and over overbought / oversold levels. These points can be useful, however traders should not neglect identifying indicator divergence as well. Divergence is the separation of price action from an indicator, and help traders identify potential turns in the market.

The first type of divergence is traditional divergence. In an uptrend, traditional divergence is identified when markets are making higher highs, but an indicator is making lower highs. An excellent example is the Gold daily chart below. First the market made a series of higher highs to Golds peak of $1,375.12. However at the same time, the MACD indicator below was trending lower. Traders aware of this divergence had the ability to adjust their risk appropriately, or plan for new downtrend entries with the newly emerging trend.

Gold Price Daily Chart a& MACD Divergence

Mastering Market Divergence

(Created Using TradingView Charts)

The second type of divergence is called hidden divergence. The reasoning for this is because divergences can be found in an ongoing trend. In the 2Hour chart below, we can see Gold Prices trending downward with the creation of a series of lower highs. At the same point, MACD is trending higher with a series of higher highs. These hidden divergences can be useful to help traders pinpoint retracements within the trend. Potential entry signals may include traditional indicator crossovers, or fresh breakouts with the trend.

Gold Price 2Hour Chart & MACD Hidden Divergence

Mastering Market Divergence

As traders approach divergence trading for the first time, it is important to remember that markets may diverge for extended periods of time. That is why trading divergences should always be coupled with a developed risk management plan.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES