seen, like in the example above, and determine their exit point based on 1 or 2 x ATR. The RSI compares the average gain and the average loss over a certain period. Divergence, system, you can use many different indicators to trade these divergence patterns, such as RSI and Stochastics, for example, but in this article I want to discuss a CCI divergence trading system that you can use to trade the major forex pairs because the. They have to match! The significance of this is that it basically signals that the existing trend is running out of momentum, and there is likely to be a price reversal that you could potentially profit from. It just means that the trend is progressing unchanged. Divergences are one of my favorite trading concepts because they offer very reliable high-quality trading signals when combined with other trading tools and concepts. Divergences can not only be used by reversal traders but also trend-following traders can use divergences to time their exits. Whichever rules are applied, it is always a good idea to use a stop loss when entering any positions, and to look to make more points from your winning trades in order to compensate for any losing trades because there are no guarantees of success. An RSI divergence #1 Revisiting the RSI, divergences work on all indicators, but my favorite by far is the RSI (Relative Strength Index). Higher highs on the RSI do not show a reversal or weakness.
All you can do now is wait for another swing high/low to form and start your divergence search over. Here well show you some examples of when there was divergence between price and oscillator movements. I have always found that the CCI (10) and CCI (60) tend to give good signals if they both show divergence at the same time because the price will often reverse in the opposing direction when this occurs. If a choppy, directionless market is prolonged, as in the case of the second divergence signal that was described above on USD/JPY, it should prompt you to cut your risk and go hunting for a better divergence trade. A Lesson Learned, so what can we learn bitcoin tramp stamp from all of this? Basically, a divergence exists when your indicator does not agree with price action. Granted, this is very basic and we will now explore more advanced divergence concepts and see how to trade them, but its important to build a solid foundation. If not, you aint trading a divergence, buddy. Learn em, memorize em (or keep coming back here apply em to help you make better trading decisions.