DIVERGENCE AND CONVERGENCE, WHAT IS THAT?

Understanding the divergence and convergence, as a strategy to project the currency pair movements!

Any traders meets the “divergence" and "convergence” terms, with the use of technical analysis.

• Divergence — a BEAR divergence.

• Convergence — a BULL divergence.

Appearance of any of these three signals, can lead to current trend weakening or even reverse. This signals can and need to be used in trading.

Divergence and convergence on Forex - discrepancy in price direction and the oscillator. More accurate description includes unconfirmed low or maximum of the price by the oscillator. Conditions can be frequently monitored with following oscillators : MACD, RSI< Stochastic, CCI and some others. Signals form these indicators are considered to be more effective with the price deviation, Classical or correct divergence represents a reversal model of the technical analysis. This deviation warns the trader about expected shot or midterm changes in trend.

Bull convergence and Bear divergence. Bear divergence is characterized with more high values of price maximums with more lowered maximums of the oscillator. Bear convergence warns about the soon to appear changes in upwards trend, about its weakness. Bear divergence warns about reversal of the upward trend.

For more precise market entry, we recommend to wait for two confirmed signals of the trend reversal from another indicator, or to use additional patterns.

Before reacting to the divergence or convergence in trading on currency or stock markets, you need to make sure that certain strength of trend is present on the market. During the periods of flat market, there is high possibility for false signals to appear. Divergence is considered to be effective exclusively on high time frames, but practice shows that good results can be achieved using short time frames.

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