Divergence is one of the most reliable classic technical signals. Over the years, by simply using divergence, traders have successfully been making profit on the financial markets, without reinventing the wheel. But MACD Divergence Indicator can automatically help you to indicate divergence on the graph and save your time and effort.
Currency pairs: Any pairs
Timeframe: M15 and higher
Recommended brokers:, ,
What is Divergence?
Divergence – is the discrepancy between the price extremes and the peaks of a specific indicator (i.e. an oscillator). Furthermore, the greater this technical imbalance is the stronger is the signal to reverse.
As a rule, following indicators are used for the divergence search: Stochastic, MACD, RSI, CCI etc.
Example of classic bullish divergence:
Example of classic bearish divergence:
Today, however, i’m not going deep into the details of the theory of divergence application. If you have any questions on this issue, please write your comments, and i will take a closer look at the divergence theory and methods of its application in one of my next articles.
What is good about divergence?
If divergence is applied properly, it allows to define the turning points very accurately and to enter the market almost at its peak with the best possible price. In this case, it is better to start searching for the divergence with an hour timeframe and higher, as the lower timeframe will contain a large number of false signals. In this respect, higher timeframes are more reliable.
An experienced trader can notice divergence on the graph at the first glance. But what if there is a huge number of graphs to analyze and the trader is not experienced enough?
So, today i would like to present an indicator for an automatic display of divergences on the graphs. As usual, you will be given a link to download this indicator at the end of this article. The indicator is based on the oscillator MACD.
What does the divergence indicator look like?
Divergence indicator screenshot:
Frankly speaking, the current image is lacking a bit in a familiar display of MACD. That is why we just uploaded a standard MACD with the same settings (12,26,9) into the divergence indicator window. To do this, it is enough to simply pull the indicator from the Navigator window into the divergence indicator.
Very good – all clear and understandable. As you can see at the screenshot, the indicator also showing the hidden divergences.
Hidden divergence confirm the continuation of a trend.
Search divergence with indicator
Indicator, of course, is far from the ideal – many signals are quite controversial. But this indicator is helps to quickly see the all picture – especially when you analyze a many pairs and using different timeframes.
For example, two bullish signals:
The first of them, i crossed out because it is built with a very much larger scale. Maybe someone use these signals, but i am recommend to consider only the most accurate signals. Look on the next signal on the chart (i highlighted this with an additional red lines).
You see the difference? The neat rounded shape of the histogram, located next to each other, provide a clear divergence signal. And we can see, the price is quickly go to the rise.
And now – an example of a hidden bearish divergence:
The downward movement was interrupted with correction, and the price grow up to the level 1.25065. The Divergence Indicator showed the hidden bearish divergence – is a continuation of the downtrend. This is what we saw on the chart.
As you can see, the deals using divergences sufficiently is accurate and we make them almost at the peaks of prices. For this reason, it is important to recognize them very quickly and make a decision about deal.
Let’s look at some examples of divergence signals.
Summary: Divergence – is a strong and accurate signal. Ability to define it can bring good profits to any trader. And not matter the way you define it – by hand or using auxiliary indicators. For beginners i am recommend to start using the Divergence Indicator for upgrading the skills of filtering divergence signals. You must visually remember the picture of divergence.
But if the visual determination of divergence is difficult for you, there is nothing terrible – simply use the Divergence Indicator.
Market – this is not an examination room, where you need prove something to someone. Use the tools that are convenient for you and the profit will be with you!