Trading Divergences Between Price and Momentum Oscillators

Types of Divergences (see Markplex link for pictures)

DivergencesFilters to Increase Probability with Divergences

  • Trend
    • 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.




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