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Divergence trading is very valuable where you can do things easily and identify the Top and bottom of the market and it also helps to improve your trading techniques and you become good trader ever. This is good tool to detect the market top and bottom which i discuss briefly about the market in this app. But This will give you extra edge on the market if you compare your self with other traders. This is basically a Book to learn the best forex book. Trading strategy forever. Forex Trading its a complete free for all android users.

So the question becomes, which indicator or indicators are best for divergence trading? The MACD is a moving average based indicator , where a signal could be taken on a crossover. In this manner, the indicator basically has a lagging character. However, the lagging character of the MACD concerns only its primary signal — the crossover signal. The indicator also has two leading functions.

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The second one concerns MACD for divergence trading. Although the MACD is a lagging indicator in general, the divergence signal it gives us, is considered to have a leading character. The image below will show you how MACD divergence trading works. At the bottom of the chart we have the MACD indicator, which is used to spot a bullish divergence.

The blue lines on the chart show the divergence itself. At the same time, the MACD creates higher bottoms. This scenario provides a nice opportunity for a long position.

The Best Divergence Trading Strategy - Forex Education

Another common oscillator used for divergence trading in Forex is the Stochastic Oscillator. The Stochastic consists of two lines which interact frequently between each other. At the top and the bottom of the indicator there are two areas — overbought and oversold areas. The Stochastic indicator can be used for overbought and oversold readings.

This is its primary purpose. However, the Stochastic Oscillator is an excellent tool for recognizing divergence trade setups. In order to find a divergence between price action and Stochastic, you should look for discrepancies between the price direction and Stochastics tops or bottoms. It acts the same way as with the MACD. The reason for this is the dynamic character of the Stochastic.

It simply gives more opportunities than the MACD. However, since the signals can be more frequent, many of them might be false signals which need to be filtered out.

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Have a look at the image below. There are two divergences on the chart, which gives an opportunity for two trades. We start by analyzing the first case. We observe higher tops on the chart, while the Stochastic Oscillator creates lower tops. The price starts decreasing afterwards. However, the Stochastic suddenly starts closing with higher bottoms. This is the second divergence pattern. The Relative Strength Index is another good indicator to build a successful Forex divergence system. The RSI indicator consists of a single line, which moves between an overbought and oversold zone.

In this manner, the RSI has a leading character. It is an oscillator like the Stochastic. Therefore, it is a good tool for spotting divergences on your chart. If you spot the pattern, it will provide for an early entry signal for your trade. The image below will show you how to trade divergence with the RSI indicator. At the bottom of the chart you see the Relative Strength Index indicator. The chart shows lower bottoms, while the RSI shows higher bottoms. We will use the Momentum Indicator to spot divergence with the price action.

After running the initial test of a simple non-filtered strategy we perform a trading data analysis that allows to identify possible filters to use to make the strategy more profitable reducing the drawdown simultaneously.

Trading strategy: DMI Divergence

If you need your own automated trading software designed based on your individual requirements, make a request for a free consultation with our team of professional programmers and find out the cost and terms of your project development. With financial background, using excellent programming techniques, developing automated trading systems of a splendid quality that serve your investing purpose. Trading contains substantial risk and is not for every investor.

An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading.

Past performance is not necessarily indicative of future results. Hypothetical or Simulated performance results have certain limitations, unlike an actual performance record, simulated results do not represent actual trading.

Also, since the trades have not been executed, the results may have under-or-over compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown. Please note, that testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.

Nordman Algorithms is not liable for any risk that you face using a ready-made indicator from Nordman Algorithms indicators base. Please, use the software on your own responsibility.

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