Divergence Forex

Divergence is said to be a disagreement that occurs between price & oscillator.

Divergence in the context of Forex trading refers to a significant disagreement or discrepancy between the price movements of a currency pair and a technical indicator. It is a powerful tool used by traders to identify potential trend reversals or trend continuation patterns.

There are two main types of divergence:

Bullish Divergence: This occurs when the price of a currency pair makes lower lows, but the corresponding indicator (e.g., Moving Average Convergence Divergence - MACD, Relative Strength Index - RSI) creates higher lows. It suggests that the downward momentum is weakening, and a potential bullish reversal might be imminent.

Bearish Divergence: Conversely, bearish divergence takes place when the price makes higher highs, but the indicator creates lower highs. This indicates that the upward momentum is waning, and a bearish reversal may be on the horizon.

Traders use divergences to supplement their analysis and make informed trading decisions. However, it is essential to note that divergence signals should not be used in isolation but rather in combination with other technical and fundamental analysis tools to increase the likelihood of successful trades.