Divergence and Convergence (Hidden) ???
I can't remember all the different names for the VERGENCES. So I just do what I do... Babypips has a very good section on this with great pictures you can print off and have in front of you while you trade... I just know that Divergence is the disagreement of the price action to a price oscillator indicator I use the Slow Stochastic Settings 8,3,3 0r 8,3 . On the 15 Min time frame charts..
The way I see it is that price and the Stochastic get out of sync and have to try and get back together.. I place trades based on where the price is on my Stochastic.. I have a couple of charts I attached from Friday.. So lets go through some trades..
On the GBP 15 Min. I am showing 4 possible trades let's go through each. The No.1 trade the price made a Higher High but stochastic Is making a Lower High. The Stochastic is Above the over sold line at 80. So I would be looking for a Short here. Once the Stochastic starts to turn and Cross it is confirmed divergence and we short. Good for a 100 pips..
No. 2 We have 3 trades here. The first lines indicated with green arrows. The first is the purple arrow, This trade would work if you were just confirming a long with this . The stochastic turned but didn't cross.. and went 30,40 pips then came back down.. The yellow arrows show the second trade where Stochastic turned then crossed good for over 60 pips..
The third and best trade is the last came down below the other 2 . But the divergence setup was further time ( longer). Stochastic turned up and crossed and went up over 100 pips.
So what do we now know about divergence's.. The longer time frame it is spread over the stronger or better the trade.. ( just like everything else we look at Bigger chart times better information).
If the Indicator is above the Midpoint Look for shorts if below look for longs..
If The indicator is turning and then crosses stronger trade. But just turned can workout also.
Also when you are checking for Divergence on your charts use your cross hairs as sometimes it can make a difference just a candle or two..
If you use this with your other tools it is a great confirming tool. But Divergence is also a very powerful trading strategy in its own right and can and is used be itself.. Again this is my take on this and how I see it and it's use.
The EUR chart is also from Friday 15 minute.. And shows possibility of 3 trades..