Valutrades Basic Trading Course – Lesson 41: Trading Divergences on MT4

Popular overview related to Forex Trend Following, Forex Tip, and Stochastic Crossover Indicator Mt4, Valutrades Basic Trading Course – Lesson 41: Trading Divergences on MT4.

Welcome to the Valutrades Basic Trading Course!

Free FX Trading Signals from Valutrades: www.valutrades.com/en/trading-signals

This is a series of videos, designed to launch the journey of beginning traders, in every aspect of trading, with Valutrades.

In this video, let’s take a look at Trading Divergences.

When we talk about divergences, we are referring to the difference in behaviour to the price action on the chart compared to that of an indicator.

Divergence Trading will allow you to determine if a trend will continue or a trend is about to end, culminating in a reversal.

This works with both bearish and bullish markets.

The confirming indicator will be an oscillator and can be the Stochastic Oscillator, MACD, or RSI.

If you are a regular follower of the Valutrades Market Blast videos, you will see us pointing out bearish and bullish indications on the Stochastic Oscillator.

In a normal strong trending market, the price action will be in Convergence with the corresponding oscillator.

For example, in a downtrend, we have lower highs on both price action and the oscillator.

In an uptrend, we will have higher highs on both price action and the oscillator.

When you see the oscillator going in the other direction than the price action, this could be a leading indicator that things are about to change.
Many traders use this method to buy at or near the bottom of a market or to sell at the top of a market.

This is called Regular Divergence.

Keep in mind, not to forget the basics of FX trading and to watch Support, Resistance, Fibonacci, Trend Lines, Candlestick Patterns and Chart Patterns, and to use Regular Divergence as a confirmation tool.

The other type of Divergence is called Hidden Divergence.

This is used to confirm the continuation of a trend and they are easy to spot.

For example, here we have a clear downtrend where price action has retraced to the upper trend line and, by definition, we have lower highs.

We have Hidden Divergence where our oscillator is showing higher highs, and the downtrend continues.

If you want further confirmation, you may want to wait for the oscillator to tell you when to enter the trade.

For example, wait for the D and K lines on the Stochastic Oscillator to cross and move from the outer zone.

Or, wait for the MACD signal line to exit the Histogram.

Or, wait for the RSI to exit the outer zone and move towards the middle.

In any case, you should pick a strategy and backtest, backtest and backtest.
This is critical in FX trading and in the next lesson we will look at creating a trading plan.

That’s all for now.

Happy trading with Valutrades and we will see you soon.

CFDs and FX are leveraged products and your capital may be at risk.

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Look for divergences, it informs you that the price is going to reverse. If price makes a new high and at the very same time that the stochastic makes lower high. This is called a “bearish divergence”. The “bullish divergence” is when the rate makes a new low while the stochastic makes higher low.

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