Forex Divergence and Convergence

• VFX Blog
• For beginners

Determining divergences and convergences visually or using technical indicators helps the trader to quickly see a lower or higher momentum, for the continuation or reversal of the trend. This is one of the best tools for how to make money on binary options and achieving the best trading results.

All technical indicators and chart analysis patterns operate on historical data, so they do not give a 100% correct forecast. However, divergence can be one of the best options trading signals, showing how the market may behave in the near future on any trading asset.

Let's first define the terms convergence and divergence.

Convergence describes a condition under which an asset's price and the value of another asset, index or any other related item move in the same direction. For instance, let's assume a situation in which market prices show an uptrend, and so does our technical indicator. In this case, we face continuing momentum, and there is a high probability that the trend will persist. So, here, the price and top binary options signals converge (i.e. follow the same direction), and the trader may refrain from the sale, as the price is likely to further grow.

Divergence, to the contrary, describes a condition under which an asset's price and the value of another asset, index or any other related item move in opposite directions. For example, if we again consider the situation when market prices are rising, and the value of a technical indicator is falling, we will encounter a decrease in momentum, therefore, with signs of a trend reversal. The price and the technical indicator are at odds, so the options signals service can choose the PUT-option for maximum profit.

So, divergence and convergence trading uses the same tools, strategies and actions of a trader to assess the dynamics of the stock, foreign exchange and cryptocurrency market. In a more detailed study of the forex divergence system, it should be said that there may be two situations for binary options trading signals: upward reversal (bullish divergence) and downward reversal (bearish divergence).

Classic (Regular) Divergence in trading

Classic (regular) divergence in trading is a situation where price makes higher highs or lower lows, and the oscillator does not do the same. This is the main sign that the trend is ending, we are waiting for a reversal. Thus, the exact binary options strategy based on the identification of such probability of trend reversal and the subsequent analysis for revealing where and with which intensity such reversal may occur.

Classic (regular) bearish divergence is a situation in which there is an uptrend with the simultaneous achievement of higher maximum by price action, which remains unconfirmed by the oscillator. Overall, this situation illustrates a weak upward trend. In those circumstances, the oscillator may either strike a new minimum or reach double or triple tops. In case of this situation, our divergence binary options strategy should be to prepare for opening a PUT-option, as there is a signal of a possible downtrend.

Hidden bullish divergence is a trading divergence in which a correction occurs during an uptrend, the indicator reaches a higher maximum, while the price does not, remaining in a correction or sideways movement. The signal means that the uptrend is still strong, it is likely to continue. In this situation, we must either hold or open a new CALL-option on the auto binary trader signal.

Exaggerated divergence is overall similar to classical (regular) divergence. However, a substantial difference is a fact that the price movement pattern here forms two tops (maximum) or bottoms (minimum), with the respective highs or lows located approximately on the same line. At the same time, the technical indicator shows the respective tops or bottoms in a visible upward or downward direction. You need additional confirmation from live trading signals.

Exaggerated bearish divergence is a situation in which the price forms two local maximum approximately on the same line (with some really small deviations), while the technical indicator diverges and has a second high at a lower level. In this situation, there is a continuing downtrend signal on the options trading signal service, and the best choice for us by example is to hold or open an additional PUT-option.

Even on the 5-15 minute binary options strategy, Stochastic rarely goes into the extreme zones and you can miss a lot of good deals. If price and Stochastic start moving in one direction − you can open an option!

Exaggerated bullish divergence occurs when price creates two local minimum on relatively the same line, while the technical indicator diverges and has its second bottom at a higher level. In this case, we have a continued upward trend binary signal, and the best choice for us by example is to hold or open an additional CALL-option.

The MACD indicator is especially recommended for beginners who do not yet have the necessary patience to wait for all the conditions for the entry point to be met. Yes, there is a delay, but this is what allows you not to be distracted by the "noise" and correctly assess the situation, especially by trading computers multiple monitors.

Divergence indicators

The most common ones of them are the following:

• Moving Average Convergence Divergence (MACD) - in divergence trading, the MACD histogram in a way to reveal those moments at which price does an upward or downward swing, but MACD does not do so. Such a situation illustrates the divergence between price and momentum. MACD is a fairly simple and simple option to understand how binary options signals work on divergences.

• Relative Strength Index (RSI) is the first oversold and overbought indicator to show an imminent trend reversal. Using the RSI chart is similar to using the MACD histogram, and the main task here is to identify the moment when the price and RSI begin to diverge. It may be the best divergence indicator in technical analysis.

• Stochastic indicator is used in divergent trading as an indicator of momentum, based on the assessment of the closing price of the asset and its comparison with past periods and winning binary signals. The method of using it is the same as in the previous two indicators.

Summarize. A divergence is an important tool for traders to look for signals of an imminent market trend reversal. By effectively using such periods, you may be able to avoid potential losses and maximize your profits. Always consider this factor in your binary options strategy.