In the example above, price cycles have made a higher high, while at the same time the technical indicator - which is the Relative Strength Index RSI,6 in this example - has not followed price higher and has made a lower high. Traders would take this as a sign that the buyers driving the market higher are weak, allowing the opportunity for sellers to step in and take control. Usually, traders would combine this analysis with other technical analysis indicators. Did you know that Admirals offers an enhanced version of MetaTrader that boosts trading capabilities?

You can now supercharge your MetaTrader 4 and MetaTrader 5 trading platforms with the Supreme Edition plugin completely free. This provides you with advanced indicators and other additional features such as the correlation matrix, which enables you to view and contrast various currency pairs in real-time, or the mini trader widget - which allows you to buy or sell via a small window while you continue with everything else you need to do.

Hidden or continuation divergences are used to trade the continuation of a trend and work slightly differently to bullish and bearish divergences.

In bullish hidden, or continuation divergence the technical indicator makes a lower low while the price cycles make a higher low.

In essence, it is saying that while the price is higher than it was before, the indicator is lower suggesting the market is much more oversold.

This could attract buyers who are looking to employ traditional types of trading strategies such as the trend following method of 'buy low, sell high' in an uptrend. An example showing bullish hidden, continuation divergence between price cycles and the Relative Strength Index RSI, 6. In the example above, price cycles have made a higher low, while at the same time the technical indicator has moved lower, suggesting the market is much more oversold.

Traders would take this as a sign that there may be very few sellers left in the market allowing buyers to drive the market back up. In bearish hidden, or continuation divergence the technical indicator makes a higher high while the price cycles make a lower high. In essence, it is saying that while the price is lower than it was before, the indicator is higher suggesting the market is much more overbought.

This could attract sellers who are looking to employ traditional types of trading strategies such as the trend following method of 'sell high, buy low' in a downtrend. An example showing bearish hidden, continuation divergence between price cycles and the Relative Strength Index RSI, 6. In the example above, price cycles have made a lower high, while at the same time the technical indicator has moved higher, suggesting the market is much more overbought.

Traders would take this as a sign that there may be very few buyers left in the market allowing sellers to drive the market back down. One of the best ways to get started is to test-drive the trading platform and practice your ideas and strategies in a virtual trading environment.

Did you know that you can open a FREE demo trading account with Admirals? This means you can trade in a virtual trading environment until you are ready for a live account. Get started today - completely FREE - by clicking on the banner below!

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments.

Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Help center Contact us. Start Trading. Trading Tools MetaTrader Supreme Edition StereoTrader Top! Virtual Private Server Parallels for MAC.

Markets Forex Commodities Indices Stocks ETFs Bonds. Best conditions All trading offers Promo Contract Specifications Margin Requirements Volatility Protection Cashback Welcome Bonus New Premium Program New.

Personal Finance New Admirals Wallet. Forex Calendar Trading News Global Market Updates New Premium Analytics Weekly Trading Podcast Fundamental Analysis Market Heat Map Market Sentiment Trading Central.

Affiliate Program Introducing Business Partner White Label partnership Refer a friend New. Compare Accounts. Advertiser Disclosure ×. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.

Related Terms. What Is Crude Oil and Why It's Important to Investors Crude oil is a naturally occurring, unrefined petroleum product composed of hydrocarbon deposits and other organic materials. Cash Price The cash price is the actual amount of money that is exchanged when commodities are bought and sold in the real world.

Backwardation: Definition, Causes, and Example Backwardation is when futures prices are below the expected spot price, and therefore rise to meet that higher spot price. Delivery Price The delivery price is the price at which one party agrees to deliver the underlying commodity and at which the counterparty agrees to accept delivery.

Contango Meaning, Why It Happens, and Backwardation Contango is a situation in which the futures price of a commodity is above the spot price. Put-Call Parity: Definition, Formula, How it Works, and Examples Put-call parity is the relationship between the price of European put and call options with the same underlying asset, strike price, and expiration. Partner Links. Related Articles. Normal Backwardation: What's the Difference?

Investing Options vs. Futures and Commodities Trading How to Trade Futures: Platforms, Strategies, and Pros and Cons. ETF News Top Oil ETFs. Trading Basic Education Commodity Spot Prices vs. Futures Prices: What's the Difference? This is a major sign of the possibility that the trend is touching its end, and reversal should be expected.

A forex divergence strategy is thus based on the identification of such probability of trend reversal and the subsequent analysis for revealing where and with which intensity such reversal may occur. Classic regular bearish negative divergence is a situation in which there is a upward trend with the simultaneous achievement of higher highs by price action, which remains unconfirmed by the oscillator.

Overall, this situation illustrates the weak upward trend. In those circumstances, the oscillator may either strike lower highs, or reach double or triple tops more often true for range-bound oscillators. In case of this situation, our divergence forex strategy should be to prepare for opening a short position, as there is a signal of possible downtrend. Classical regular bullish positive divergence assumes that in the conditions of a downtrend, price action achieves lower lows, which is unconfirmed by the oscillator.

In this case, we face a weak downward trend. The oscillator may either strike higher lows or achieve double or triple bottoms which more often occurs in range-bound indicators such as RSI.

In this case, our divergence forex system strategy should be to prepare for opening a long position, as there is a signal of possible uptrend. In contrast to classic regular divergence, hidden divergence exists when the oscillator reaches a higher high or lower low, while price action does not do the same.

In those circumstances, the market is too weak for the ultimate reversal, and therefore a short-term correction occurs, but thereafter, the prevailing market trend resumes, and thus trend continuation occurs. Hidden divergence in forex may be either bearish or bullish. Hidden bearish divergence is a divergence trading forex situation in which correction occurs during a downtrend, and the oscillator strikes a lower low, while price action does not do so, remaining in the phase of reaction or consolidation.

This indicates a signal that the downtrend is still strong, and it is likely to resume shortly thereafter. In this case, we should either hold or open a short position. Hidden bullish divergence is a trading divergence in forex in which correction takes place during an uptrend, and the oscillator achieves a higher high, while price action does not do so, remaining in the phase of correction or consolidation. The signal here means that the upward trend is still strong, and it is likely to resume shortly thereafter In this situation, we should either hold or open a long position.

Exaggerated divergence is overall similar to classical regular divergence. However, a substantial difference is the fact that the price movement pattern here forms two tops or bottoms, with the respective highs or lows located approximately on the same line.

At the same time, the technical indicator shows the respective tops or bottoms in a clearly visible upward or downward direction. Exaggerated bearish divergence is a divergence in forex is a situation in which price forms two tops approximately on the same line with some really slight deviations possible , while the technical indicator diverges and has its second top at a lower level.

In this situation, there is a continued downward trend signal, and the best option for us is either to hold or to open a new short position.

Due to the forex market's complexity, it is hard to find an optimum indicator to foresee the potential development of market trends, if any such indicator exists at all. However, forex divergence may be one of the best indicators to reveal how the market may behave in the periods to come, thereby providing the investor with the opportunity to make the best justified trading decisions.

If you are interested in how to trade divergence in forex, this article is right for you. Convergence in forex describes a condition under which an asset's price and the value of another asset, index or any other related item move in the same direction. For instance, let's assume a situation in which market prices show an uptrend, and so does our technical indicator. In this case, we face continuing momentum, and there is high probability that the trend will persist. So, here, the price and the technical indicator converge i.

follow the same direction , and the trader may refrain from sale, as the price is likely to further grow. Divergence in forex, to the contrary, describes a condition under which an asset's price and the value of another asset, index or any other related item move in opposite directions.

For instance, if we consider again a situation where market prices grow and the technical indicator's value drops, we will face decreasing momentum, and thus signs of trend reversal. The price and the technical indicator diverge, and therefore the trader may opt for running sale for procuring the highest profit.

So, basically, forex divergence trading and convergence trading focus on the same tools and mechanisms and embrace the same actions performed by the trader for evaluating market dynamics. When investigating more in detail the forex divergence system, it should be said that two situations may exist: upward reversal bullish divergence and downward reversal bearish divergence.

Classic regular divergence in forex trading is a situation where price action strikes higher highs or lower lows, without the oscillator doing the same.

This is a major sign of the possibility that the trend is touching its end, and reversal should be expected. A forex divergence strategy is thus based on the identification of such probability of trend reversal and the subsequent analysis for revealing where and with which intensity such reversal may occur. Classic regular bearish negative divergence is a situation in which there is a upward trend with the simultaneous achievement of higher highs by price action, which remains unconfirmed by the oscillator.

Overall, this situation illustrates the weak upward trend. In those circumstances, the oscillator may either strike lower highs, or reach double or triple tops more often true for range-bound oscillators. In case of this situation, our divergence forex strategy should be to prepare for opening a short position, as there is a signal of possible downtrend. Classical regular bullish positive divergence assumes that in the conditions of a downtrend, price action achieves lower lows, which is unconfirmed by the oscillator.

In this case, we face a weak downward trend. The oscillator may either strike higher lows or achieve double or triple bottoms which more often occurs in range-bound indicators such as RSI. In this case, our divergence forex system strategy should be to prepare for opening a long position, as there is a signal of possible uptrend.

In contrast to classic regular divergence, hidden divergence exists when the oscillator reaches a higher high or lower low, while price action does not do the same. In those circumstances, the market is too weak for the ultimate reversal, and therefore a short-term correction occurs, but thereafter, the prevailing market trend resumes, and thus trend continuation occurs.

Hidden divergence in forex may be either bearish or bullish. Hidden bearish divergence is a divergence trading forex situation in which correction occurs during a downtrend, and the oscillator strikes a lower low, while price action does not do so, remaining in the phase of reaction or consolidation. This indicates a signal that the downtrend is still strong, and it is likely to resume shortly thereafter. In this case, we should either hold or open a short position. Hidden bullish divergence is a trading divergence in forex in which correction takes place during an uptrend, and the oscillator achieves a higher high, while price action does not do so, remaining in the phase of correction or consolidation.

The signal here means that the upward trend is still strong, and it is likely to resume shortly thereafter In this situation, we should either hold or open a long position. Exaggerated divergence is overall similar to classical regular divergence. However, a substantial difference is the fact that the price movement pattern here forms two tops or bottoms, with the respective highs or lows located approximately on the same line.

At the same time, the technical indicator shows the respective tops or bottoms in a clearly visible upward or downward direction. Exaggerated bearish divergence is a divergence in forex is a situation in which price forms two tops approximately on the same line with some really slight deviations possible , while the technical indicator diverges and has its second top at a lower level.

In this situation, there is a continued downward trend signal, and the best option for us is either to hold or to open a new short position. Exaggerated bullish divergence occurs when price creates two bottoms on relatively the same line, while the technical indicator diverges and has its second bottom at a higher level.

In this case, we have a continued upward trend signal, and the best choice for us is to hold or open a new long position. A number of different forex divergence indicators may be used in forex divergence trading.

The most common ones of them are the following:. Moving Average Convergence Divergence MACD is a forex divergence indicator based on the evaluation of a technical indicator's exponential moving average values for 26 and 12 days or 9 days. In divergence forex trading, the MACD histogram in a way to reveal those moments at which price does an upward or downward swing, but MACD does not do so.

In fact, such situation illustrates the divergence between price and momentum. MACD is quite a straightforward and easy-to-use divergence forex indicator. Relative Strength Index RSI is a divergence forex indicator which is based on the assessment of a stock's internal strength and the subsequent comparison of its upward and downward price change averages. The use of the RSI chart is similar to the use of the MACD histogram, and the main task here is to reveal the moment at which price and RSI start diverging.

This may be the best divergence indicator in forex for traders able to perform basic technical analysis. Stochastic indicator is used in divergence trading as a momentum indicator based on the evaluation of a stock's closing price and its comparison with such stock's price range over a particular period.

The scheme of its use is quite the same as in the two previous indicators. The divergence indicator in forex may be an essential tool for traders to identify signals of close market trend reversal. Through the effective use of forex divergence and convergence, to may be able to avoid possible losses and maximize your profits.

Develop your own best divergence strategy of forex trading, and you will see how convenient it may be a how effectively it will fill up your trader's arsenal. Library Articles about Trading Forex Divergence and Convergence By using convergence and divergence indicators, traders may effectively reveal higher and lower momentum, and therefore the possible trend continuation or reversal. Effectively using the forex divergence trading system may be one of the best tools to forecast the situation and to achieve the best trading results.

Contents Overview of Convergence and Divergence in Forex Classic Regular Divergence in Forex trading Hidden Divergence Exaggerated Divergence Forex Divergence indicators Conclusion Due to the forex market's complexity, it is hard to find an optimum indicator to foresee the potential development of market trends, if any such indicator exists at all.

Overview of Convergence and Divergence in Forex Let's first define the terms convergence and divergence. Classic Regular Divergence in Forex trading Classic regular divergence in forex trading is a situation where price action strikes higher highs or lower lows, without the oscillator doing the same. Hidden Divergence In contrast to classic regular divergence, hidden divergence exists when the oscillator reaches a higher high or lower low, while price action does not do the same.

Exaggerated Divergence Exaggerated divergence is overall similar to classical regular divergence. Forex Divergence indicators A number of different forex divergence indicators may be used in forex divergence trading.

The most common ones of them are the following: Moving Average Convergence Divergence MACD is a forex divergence indicator based on the evaluation of a technical indicator's exponential moving average values for 26 and 12 days or 9 days.

Conclusion The divergence indicator in forex may be an essential tool for traders to identify signals of close market trend reversal. Back to list of articles. How to control emotions in Forex trading. How to invest in Forex? Tips for Beginning Traders. More articles. Live chat. General questions [email protected] Marketing team [email protected] Partnership cooperation [email protected].

Found A Bug? Upload files. Files must be in JPG, PNG, PDF or GIF format, their size must not exceed 5 Mb. Thanks for the help! We will fix the bug soon.

We remind you that if the bug is critical, we will credit your account as a reward.

A popular question for many traders is: How accurate is divergence trading? This article will provide traders with a detailed explanation of what Harmonic Trading Patterns are, how harmonic trading patterns are used in currency markets, as well as, exploring market harmonics, harmonic ratios, and much more! Exaggerated divergence is overall similar to classical regular divergence. Conclusion The divergence indicator in forex may be an essential tool for traders to identify signals of close market trend reversal. Tips for Beginning Traders. Although the strategy is often profitable, it is almost impossible to identify risks.

Categories:

• Binary Options
• Forex Bitcoin
• Binary Options online
• Forex
• Forex Brokers