Having studied the main methods of market analysis, we can safely say that forecasts of rates have a better chance of execution if trader combine technical and fundamental methods. Try it, perhaps it is this information that trader lacked to improve trader performance. This implies a combination of the two listed methods. That is, when it is necessary to make a forex forecast for today, the trader begins to act according to the following scheme:
• The market is predicted based on the signals of the chosen trading strategy.
• The signals received are verified using the “Economic Calendar” and related financial information.
• Based on the findings, the market is entered.
Correct divergence. Hidden divergence. “What a great tool, it really works!”, “Trader see divergences all over the place and would have gone bankrupt long ago if Trader had traded on all signals. It doesn’t work for me! ” Such comments and the like can often be heard during discussions between traders. Hopefully we can clear up some of the confusion about divergences so that trader can successfully add Correct and Hidden Divergences to trader arsenal of technical trading tools.
Divergence is a comparison of price with technical indicators. It can also be a comparison to another graphic symbol or the difference between two symbols. Divergence occurs when the charts trader are comparing move in opposite directions. Divergence can signal an impending trend change, the development of a trend change, or that the trend should continue. A divergence signal suggests that trader need to watch for a trading opportunity in the direction of the signal. Divergences can continue across multiple swing highs or lows, so price action should confirm the signals received. This can be done in many ways, some of which may be: price makes a higher high / low or a lower high / low, the price is testing the last swing high / low, the price has broken the high or low of the previous bar. Many of these confirmations will coincide with a MACD-Histogram zero cross.
When trading divergences, many indicators can be used, such as Stochastic, MACD, RSI, CCI and others. As with most indicators, divergence signals in a larger time frame will indicate more significant price movement. In the examples below, the price is compared with the Stochastic and MACD indicators. Each chart has a 50-period exponential moving average (blue), a 200-period EMA (red), a Stochastic with periods of 9/3/3 and a MACD-Histogram with parameters 7/10/5 are used. There are many other parameters for Stochastic and MACD that will also work successfully for divergence signals.
Correct Divergence (RD) is best used when testing a previous high or low, which most traders refer to as a double or triple top / bottom. It is quite common to see 3 or 4 higher price highs during an uptrend with 3 or 4 lower indicator highs, or 3 or 4 lower price lows during a downtrend with 3 or 4 higher indicator lows. This is called the 3rd or 4th Correct Divergence . Such a Correct Divergencethe indicator signals to us that the trend is becoming weak, and there is a potential for a trend change and should be traded accordingly. For some traders, this may mean moving stops more closely, while others may prefer to take profits.
Hidden Divergence (SD) is best used during trending for trades in the direction of the trend. In most cases, the price, in accordance with the Hidden Divergence, will move towards at least the last high or low of the swing, thus giving us the opportunity to calculate our risk to reward ratio for such a trade. If there is not enough room to move between the point where the signal is received and the last swing high or low, then most traders prefer to skip such a trade. Another warning to skip a trade given by a Hidden Divergence is the presence of a Correct Divergence for the last 3rd high during an uptrend or the last 3rd low during a downtrend, which signals a possible trend change.
Many traders already use Correct Divergences in their trading. Correct divergences , used in conjunction with Hidden Divergences, can slightly improve winning trades. As much as possible, depending on the trading style of the trader.
As long as the price makes higher highs and higher lows, then the market is considered to be in an uptrend in this time frame. When price makes lower highs and lower lows, then the market is considered to be in a downtrend.
The next two charts provide an example of Correct Divergence . Just because we see the correct divergence when comparing two highs in an uptrend or two lows in a downtrend does not mean that we need to automatically open a position. If the trend is strong enough, then trader can get only sideways price movement or one or two recovery bars before the trend continues. Correct divergence can be a useful tool to answer the question of whether the trend is gaining further momentum or not.
Correct divergence during an uptrend (higher highs and higher lows) compares the higher highs on the price chart to the highs on the indicator. Note that both Stochastic and MACD are making a lower high, while price is making a higher high, signaling a weakening trend.
Hidden divergence (HD) compares higher price lows in an uptrend with lower lows in an indicator and lower highs in a downtrend with higher highs in an indicator. Hidden divergence helps determine if an existing trend is going to continue. The following chart shows how Hidden Divergence can confirm which retracement flags have a high likelihood of continuation for possible trading in the direction of the trend. When trader draw a trend line on the indicator that trader are using, it is advisable that its length matches the trend line drawn on the price chart. Notice how entry into the market based on price action is for many traders combined with a zero cross in the MACD indicator used.
The following chart shows how to use divergences in conjunction with trendlines and the expected MACD crossing of zero at the same time as the trendline breaks. Divergence implies that the price will have the strength to overcome the resistance of the trend line. Pay attention to the parameter set to the larger temporary format in the inserted fragment. Moving to a shallower time frame would allow for a better entry point with less risk.
The chart shows how the divergence signaled two identical setups for low risk long positions on the trend line break (blue lines), which also coincided with the MACD zero crossing. The second low risk long position also has a Hidden Divergence with the previous low also in its favor. Note that the 3rd Correct Divergence shown on the larger time frame (in the oval) also deserves our closest attention.
Also, this chart shows many other Correct and Hidden Divergences , which are labeled accordingly. Divergence trades that combine with trendlines, Fibonacci levels, supports, resistances and / or chart patterns will be more reliable and provide a higher winning rate.
The probability of a correction forming after a price jump on cryptocurrency charts is approximately 50/50. Consequently, an effective strategy to make money on pullbacks, which can be successfully applied when trading Forex, turns out to be useless when working with altcoins.
• When trading cryptocurrencies, it is unacceptable to use oscillators due to the high percentage of false signals. To analyze such assets, it is much more efficient to use standard trend indicators (Bollinger envelope, moving averages, and others).
• When analyzing token charts, it is useless to use the Price Action candlestick analysis system.
• Wide spreads, the range of which can reach 100 pips, especially in conditions of increased liquidity.
• Changing trading sessions does not have any effect on altcoin pricing dynamics.
The decentralized nature of the cryptocurrency market and the lack of regulation create all the conditions for large trading participants to use the Pump & Dump strategy. As practice shows, mainly new and little-known tokens are subject to this.
A Proven Method of Successfully Trading Altcoins
The most important feature of cryptocurrency pricing that anyone can effectively use in trading is the frequent formation of price impulses. To make money on this, it is important to place trade orders in a timely manner in the direction of the jump. For this, it is recommended to use pending Buy Stop and Sell Stop orders.
To place orders, trader should wait for the formation of at least 5 candles formed in the same price range. Such “patterns” are displayed on the BTC / USD chart almost every day.