Introduction to divergence trading - 10% to Tron-Fan-Club
Good day everyone and welcome to my blog.
Today, we will be discussing about divergence trading.
A divergence is regarded as a situation whereby an added indicator mostly osscilators tends to provide signals in contrary to the market trend.
Divergence can be regarded as a false signal filter as it helps traders to spot when a current trend is weak and prone to a possible reversal. This thereby guide them away from taking positions in direction of the current market trend as shown by the price action.
In other words, a divergence can simply be regarded as a weak trend indicator or false signal filter.
There are two types of divergence and they are;
- Bullish divergence
- Bearish divergence
Bullish divergence occurs when the price action is signaling a continuous bearish trend by the formation of lower lows while the indicator is signaling a bullish trend by forming lower highs.
When this happens, it shows that the current bearish trend is already weak and a possible reversal is expected.
- See below.
This type of divernegce occurs when a price action is forming a higher high and the indicator is forming a higher low.
When this happens, it shows that the current bullish trend is weak and prone to a possible reversal.
- See below
From the above examples, we have clearly seen that in other to spot a divergence, an osscilator indicator such as RSI or Stochastic osscilator is used which will aid a trader in identying when a trend is weak and prone to a possible reversal.
In conclusion, divergences are very common way of spotting weak trends and in as much as this trading strategy is effective, it is always best to combine it with other confluences such as waiting for the price to move above or below the mid-point of the RSI and also waiting for a breakout to happen before taking a position.
Tweet link
https://twitter.com/EbullientSrr/status/1520740611241955328?s=19
Thank you bringing back those good old memories in SCA while learning how to trade crypto. This was part of what we were taught and i must say it was fun. Thanks for doing justice to the topic.
You're welcome bro.
It's always go to refresh
You guys have a fantastic brain. I dont understand analysis 😭
It's a matter of interest.
Once you're interested, you give it time and attention and you will understand
Thank you. i will try to learn. But I think its very hard.
Yeah this strategy is effective and thank you very much for sharing with us
It's my pleasure to sure.
Thank you for your appreciation