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Divergences are an amusing occurrence in trades. While many might think varying indications are inaccurate, divergences prove them wrong. When these occur between technical indicators or between a price and an indicator, a phenomenon is presented, that seems problematic but is immensely lucrative. Be it currencies, or stocks – divergences can help attain consistent profits! […]

Divergences are an amusing occurrence in trades. While many might think varying indications are inaccurate, divergences prove them wrong. When these occur between technical indicators or between a price and an indicator, a phenomenon is presented, that seems problematic but is immensely lucrative. Be it currencies, or stocks – divergences can help attain consistent profits!

A divergence is observed when two or more indicators deliver contradicting signals, by moving in opposite directions. While most write this off as a weird happening, upon deeper analysis, you will figure something unique in the background. When you observe the charts while employing RSI and price indicators, a divergence is seen.

This same divergence between RSI and price indicators, will show falling price movements. When there is a downtrend on the RSI index, it means the bullish trends are coming to an end, and that the market is gradually going in the favor of sellers. Indications like these are what every Forex trader needs before heading into the markets. When employing multiple indicators, divergences are to be expected. However, while most pay no heed to it, the smart trader finds an opportunity. In markets like foreign exchange, price movements have to be watched out for, and the trends that trigger these. This is what makes Forex trading strategies indispensable! Without a proper strategy in place, catching trends is close to impossible.

Divergences give traders the window to predict reversals in Forex markets. The reason reversal patterns are sought after is because they indicate a change in price movements, which will call for a different strategy and approach, all on the same commodity.

Using a Divergence in Forex Trading

To best spot a divergence in Forex, an RSI and price indicator are apt variables. Once these are in place, look for any reversals from uptrend’s or downtrends in the RSI. This area of the price chart will now show a high. After most RSI – price divergences, there is a gradual drop in the price. Doing this in real-time needs experience and practice. Several such set-ups will show up, where the divergence can be capitalized on!

With proper research, practice, and a good grasp over indicator implementation, you can profit from most divergences that are birthed by the market.

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