9 Rules for Trading Divergences
Before you head out there and start looking for potential divergences, here are nine cool rules for trading divergences.
Learn ’em, memorize ’em (or keep coming back here), apply ’em to help you make better trading decisions. Ignore them and go broke.
1. Make sure your glasses are clean
In order for divergence to exist, price must have either formed one of the following:
Higher high than the previous high
Lower low than the previous low
Double top
Double bottom
Don’t even bother looking at an indicator unless ONE of these four price scenarios have occurred. If not, you ain’t trading a divergence, buddy. You’re just imagining things. Immediately go see your optometrist and get some new glasses.