Types of Divergences (see Markplex link for pictures)
- Trade in the direction of the trend
- If trading countertrend, look for signs of trend exhaustion, or scalp a small target
- Not to be used with sideways markets.
- Divergence is mainly used to play trend continuations and reversals, not for sideways market.
- Divergence is a confirmation, not a trade trigger
- Trade only with confluence, e.g. with support / resistance, trend lines, key price levels
- Apply divergence on significant peaks
- Use divergence only when prices are in overbought / oversold levels
- The higher the time frame the more accurate the divergences
Momentum Oscillators Typically Used
- RSI, Stochastics, CCI, OBV, MACD, Williams’ %R, Momentum, 5-15 price oscillator, NYSE TICK, etc.