This is all about divergence cheat sheet.
Divergence in forex trading is the difference between indicator patterns and prices.
There are two types of divergence: regular divergence and hidden divergence.
Meanwhile, Regular divergence split into two types, bullish regular divergence, and bearish regular divergence.
Hidden divergence also split into two types, bullish hidden divergence, and bearish hidden divergence
To identify divergence, you must make sure to compare the peak point or the lowest point
That is significant at the price as well as the peak point or bottom point corresponding to the indicator.
If necessary, draw a vertical line from the peak or lowest point you are comparing to the corresponding points on the oscillator.
This type of divergence is commonly used by traders to look for reversals. Regular divergence is divided into two types, is regular bullish divergence and regular bearish divergence.
Regular bearish divergence
is a type of divergence arises in an ascending trend when prices make a higher high but the indicator only shows a lower high and this is an indication that a reversal will occur.
Regular bearish divergence is a condition of price movements indicating higher high, but the oscillator indicator shows a lower high.
This indicates that the uptrend that will occur will end soon and the reversal will come soon.
This type of divergence generally occurs in an uptrend. After the chart forms the second lowest point, and the oscillator indicator fails to form the next lower low, it forms a higher low
Then there is a possibility that price movements will reverse.
Regular Bullish Divergence
This type of divergence usually appears on a downward trend (or after a fairly long downward movement) when prices make a lower low (lower low), but the indicator makes a lower low.
Regular bullish divergence is a condition where the price movement shows a lower low, but the oscillator indicator shows a higher low.
This indicates that the downtrend that occurs will end soon and the reversal will come soon.
This type of divergence generally occurs in downtrend conditions.
After the chart forms the second lowest point, and the oscillator indicator fails to form the next lower low, it forms a higher low
Then there is a possibility that price movements will reverse.
This divergence can be used to detect whether the current trend will continue.
Keep in mind that the trend in the forex market is your best friend!
So, when you get a signal that indicates that the trend will continue, don’t ignore the signal.
Just like regular divergence, hidden divergence also has two types, namely the bullish type, and the bearish type.
Bullish hidden divergence
This type of divergence appears in an ascending trend and indicates a continuation of a trend. This happens when the price makes a higher low and the indicator makes a lower low.
When prices show a higher low, consider how the oscillator indicator moves.
If the indicator actually forms a lower low, then hidden divergence is occurring.
Bearish Hidden Convergence
When prices make a lower high (lower high), but the indicator makes a higher high, we have found a hidden bearish divergence. Shortly after, the downward trend continued again.
Bearish hidden divergence occurs when the market is downtrend.
When the price shows a lower high, the indicator actually forms a higher high, then hidden divergence is happening.
When you find this divergence, there is a possibility that the downtrend will continue.
RSI divergence cheat sheet
RSI or Relative Strength Index is a technical indicator included in the oscillator indicator, RSI usually traders use this indicator to look for saturated price patterns and price descriptions that can be seen as Low or High limits when the trend is taking place
The RSI indicator is then known as an Oscillator indicator with levels from 0 to 100.
RSI Indicator As A Reader For Divergence
Besides being used to determine overbought or oversold areas, RSI can also look for divergence as a reversal signal
According to Wilder, signal divergence can be a reversal point in a trend. This is possible because the price does not have the strength to continue the trend.
A bullish divergence signal occurs when the price on the chart appears to form a lower low, but the RSI signal forms a higher low.
While the bearish divergence signal occurs when the price on the chart appears to form a higher high, but the RSI signal actually forms a lower high.
The signal divergence that illustrates that the trend might change direction, by this RSI indicator can be a reference for trading, but you still need risk planning, and you should always update to read the news that might make the price change and not match the RSI divergence signal
Macd Divergence cheat sheet
MACD (Moving Average Convergence Divergence) is a very simple and useful indicator for a trader. This is an indicator of technical analysis.
MACD is also an indicator for overbought and oversold by looking at the relationship between long and short term moving averages
MACD as an indicator has three parts, consisting of two lines, and one histogram. In the MACD analysis the following three elements are:
- Signal Line. Usually red. Calculated from the EMA (Exponential Moving Average) in the span of 9 days. The Signal Line period can be changed.
- MACD Line. This line is calculated from the reduction of EMA for 26 days and 12 days. The period can be changed according to preference.
- MACD Histogram. MACD Bar Graph This histogram is calculated from the reduction of the MACD line value with the signal line (MACD line – Signal Line).
There are also functions and uses of these indicators including:
- Identify trends in stock prices
- Knowing trend reversal, and detecting momentum
- Identify overbought and oversold
Trading with MACD Divergences
How do you find divergence using MACD?
Basically, the method is the same as recognizing divergence in other indicators such as stochastic, CCI, or RSI.
On the MACD, what you notice is the peaks and valleys of the histogram.
Bullish divergence is when the valley chart gets lower but the valley histogram gets higher. At that time the histogram is below zero level
Bearish divergence is when the top of the chart gets higher but the top of the histogram gets lower. At that time the histogram is above zero levels. Confirmation of bearish divergence is when the histogram drops below zero levels.
Bearish divergence conditions are marked by peak prices that continue to climb, while the peak of MACD decreases. The confirmation of the entry from the MACD divergence signal can be seen in the bearish candlestick formation, rejection (rejection) at resistance level 2, and the formed triangle pattern (symmetrical and downward).
Stochastic divergence cheat sheet
Stochastic is also one indicator that is popular among traders because it is easy to understand and use. In addition, with a good method, this indicator can also generate profits with fairly good consistency. That is why this indicator is still popular today.
This indicator has two lines: the% K line and the% D line. For the sake of convenience to distinguish it, usually, both are given different colors. The color commonly used is light blue for% K and red for% D. In addition,% D is also usually displayed as a dashed line.
Other components are overbought and oversold areas. On the stochastic, the overbought area is located above level 80, while the oversold area is located below level 20.
How to Read Stochastic Divergence
In addition to providing overbought and oversold information, stochastic can also be used to look for bullish divergence and bearish divergence.
There are 2 main steps in using stochastic divergence:
Make a line on the chart and also at Stochastic whose position is parallel
The first step is to make 2 parallel lines. Observe the chart first, it is recommended that the minimum TF H1, draw the line at each end of the TOP or DOWN both on the chart and on the stochastic. If making a line whose position is above the chart then the stochastic is also the same position above, and vice versa, if the line drawn position is below the chart then the position is also stochastic below. Draw as many lines as possible to detect divergence.
A simple tip to make a line in this step is if the direction of the trend rises, drag the TOP chart and also above the stochastic indicator, or if the direction of the trend drops, drag the line DOWN the chart and also below the stochastic indicator. Both of these line patterns apply both to detect trend reversals (regular divergence) and the trend of the hidden (hidden divergence).
Defines the type of divergence based on the direction of the line
The second step (a) is to look at the direction of the line contained on the chart and stochastic. If the line above the chart is pointing upwards but the stochastic line is directed downwards, it is detected that there will be a reversal of the downtrend (regular bearish divergence), but if the line on the chart is directed downward but the line in stochastic is pointing upwards, downward trend is detected (hidden bearish divergence)
The second step (b) another option is to look at the direction of the line that is BELOW chart and stochastic. If the line on the chart is downward but the line at stochastic is pointing upwards, it will detect a bullish divergence. But if the line on the chart is pointing upwards but the line at Stochastic is pointing down, then there is a detected bullish trend divergence.
Regular Divergence >> The reference looks at the direction of the line at stochastic if it rises it means there is an indication of a reversal of a rise, if it goes down it means there is an indication of a reversal of a reversal ”
Hidden Divergence >> The reference looks at the direction of the line on the chart if it rises it means there is an indication of continuation up, if it goes down it means there is an indication of continuation down ”
Divergence trading is very useful for us to be able to identify when a trend will continue, or when a trend starts to slow down and tends to reverse direction.
The ability to identify whether the trend will continue or will be reversed is certainly very necessary
To learn and do divergent analysis requires good accuracy, and patience waiting for a valid signal momentum, and in any case, there are no indicators that are flawless, sometimes also giving the wrong signal, so discipline using risk management is also important