The chart above shows an example of such a divergence

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Its main peculiarity is that the signal is advanced. Its confirmation can be obtained a posteriori, with the corresponding market movement. In general, any indicator signal, price action, chart or wave pattern, which confirms the veracity of the price movement or advanced divergence signals, can be considered a confirmation. Divergence and reversal Reversal, as a trading concept, refers to the change in direction of movement. In technical analysis, reversals are of utmost importance as they allow traders to profit on a new trend. A reversal can occur after a divergence, when the indicator signals a change in market sentiment. Also a reversal can occur after reaching a key level or when the price crosses the boundaries of the trend line.  In trading, it is convenient to apply it to enter the trend after a failed reversal.

It is important to remember that divergence is an early signal, while a confirmation and a reversal define the current state of the market. Trading according to divergence signals We have already studied the theory and now let's look at the practical application of this tool in different financial markets. Bearish divergence The classic view of this signal is formed in the presumed closure towards the dynamic. In such situations, traders  Peru Mobile Number List often say that the "trend is exhausting." LiteFinance: What is Forex Divergence?  Divergence and convergence: theory and practice of application |  Litefinance , it is highlighted with blue lines. With this we understand that there will soon be a reversal, but you necessarily need a confirmation signal to open the position! To define the entry point, we will use the intersection of the trend line (dark green). Hidden bearish divergence Unlike the last two, this signal indicates the continuation of the trend.



After closing the reversal bar below the trend, we open a short position. With a blue line we mark the entrance to the market. We place the stop loss just above the nearest local maximum (red line). To set the profit we will use take profit , equal to two stops (green line). Afterwards, the graph goes down and we fix the profit. Bullish divergence The classic Forex bullish divergence is an excellent reversal signal. As with the bearish divergence, we will use the intersection of the trend line to enter the market. LiteFinance: What is Forex Divergence?  Divergence and convergence: theory and practice of application |  Litefinance The chart above is an ideal example for such a signal. The price is in a downtrend. After a long time we see a cascade of two consecutive regular bullish divergences. To better appreciate, he marked them with different colors. We will talk more about this phenomenon.The solution is a combination of reversal signals with other indicators and trading strategies, we will talk about it later.