hello guys here is one of the most
important lessons about training if you
want to become a successful trader or
investor then you must learn how to spot
and trade a divergence like a pro
divergences should be one of your most
important tools because they signal
momentum coming into the main trend or
indicate a possible reversal when the
trend is nearly over you don't even have
to learn all the concepts about trading
if you master the divergences with basic
price action and support and resistance
levels you can easily trade stocks Forex
or any other instruments you prefer so
by the end of this video you'll learn
the power of divergences you'll learn
how to spot them easily and you'll also
discover the best indicators you must
use to trade divergences before we
continue if you are new to the channel
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your support so what is the divergence
almost all technical indicators track
the evolution of price movement meaning
that they like price that's why most of
the oscillators using technical analysis
are lagging indicators when the price of
a stock moves upward the indicator also
moves upward when the price moves
downward the indicator also moves
downward but sometimes however a visual
discrepancy is seen between the price in
the indicator this visual discrepancy is
known as a non confirmation and is
called a divergence there are two types
of divergences
regular divergences and hidden
divergences a regular divergence is
characterized by higher high prices but
a lower indicator values during an
uptrend and lower low prices followed by
higher indicator values during a
downtrend irregular divergence is
considered a leading indicator because
it can identify with good accuracy tops
and bottoms it also helps traders to
sell near the top and why near the
bottom in
words a classic divergence signals a
possible trend reversal irregular
divergence has two patterns first is the
regular bearish divergence a regular
bearish divergence appears during an
uptrend when the price is making higher
highs but the indicator indicates a
lower high as you can observe in this
chart the price was in a strong bullish
trend with a price pushing for new highs
however the indicator failed to record
new highs on a contrary recording a
lower high that's a strong indication of
market exhaustion and a possible sign of
market reversal or at least a short-term
collection and second we have regular
bullish divergence a regular bullish
divergence appears during a downtrend
when the price is making lower lows but
the oscillator records higher loss again
when we analyze this chart we see that a
price plunged quite aggressively with
the price seeking for new lows this move
was not confirmed by the indicator which
failed to record new lows on a contrary
recording higher loss thus the regular
bullish divergence suggests a possible
market reversal for a short term
collection besides regular divergences
we also have hidden divergences a hidden
divergence is a visual non-confirmation
characterized by higher lows of the
price but lower indicator values during
an uptrend and lower highs of the price
and higher indicator values during a
downtrend hidden divergences signal
continuation moves in the direction of
the prevailing trend so that's the main
difference between the regular
divergences and the hidden ones the
regular divergences indicate reversals
while hidden divergences indicate
continuation so remember this important
rule
a hidden divergence has two patterns
first we have the bullish shootin
divergence in a bullish hidden
divergence the oscillator makes lower
lows but the price makes either a higher
low or a double bottom low this type of
pattern occurs mainly during upward
collections let's take a look at this
example the price was in a very strong
upward trend and recorded an important
collection the price resumed its initial
upward direction they recorded another
pullback and you can observe the price
failed to record new lows and closed
higher than the previous downward swing
however if we look at the oscillator in
recorded a lower low thus forming a
hidden divergence and signaling that a
possible upward movement is on a cards
then we have the bearish hidden
divergence in a bearish hidden
divergence the oscillator makes higher
highs what the price makes either lower
highs or double bottom hires this type
of pattern appears mainly during
downtrend corrections in this example
after a strong uptrend the recent price
action indicated a downward momentum
with the price making lower highs
despite the fact that the price was
making lower highs the oscillator
recorded higher highs thus forming
hidden divergence now let's see the best
indicators you could use to identify
divergences the relative strength index
is a powerful indicator and one of the
most reliable oscillators when used
correctly a great use of the relative
strength index is to search for
divergences between the RSI and the
price of the stock let's use the Tesla
stock as an example with the errors I
added on the chart and let's see what we
find here is a regular divergence
and here is a hidden divergence another
great indicator for divergence trading
is the CCI the commodity channel index
is an oscillator used in technical
analysis in order to measure the
variation of a stock's price from a
statistical mean there are two main
methods used by traders to interpret the
commodity channel index looking for
divergences and as an overbought or
oversold indicator let's analyze this
Amazon chart in this area we have a
regular divergence and here is that
hidden divergence if you want to learn
more about the CCI
go watch an in-depth video about this
indicator here another useful tool for
spotting divergences is the obv the
unbalanced volume is a momentum
indicator that relates volume to price
change the obv shows if the market
volume is flowing into or out of a
security or stock divergences occur when
the price movement is not confirmed by
the obv I use the obv mainly for regular
divergences in this example we have the
market making higher highs and higher
lows but gob be signaling the end of the
trend also probably my favorite
indicator for identifying divergences
the stochastic the stochastic oscillator
is a momentum indicator excellent at
pinpointing divergences on this chart we
have a regular divergence here and a
hidden divergence here
I also use the money flow index for
spotting divergences this indicator
measures the strength of money flowing
in and out of a security or a stock the
money flow index is related to the
relative strength index but with a twist
while the RSI only incorporates price
the money flow also incorporates the
volume the money flow index is great at
spotting divergences because it also has
a big advantage it incorporates the
volume in this example we have a clear
irregular divergence in the hidden
divergence here another good indicator
for divergence trading is the awesome
oscillator the awesome oscillator
compares the recent momentum with a
momentum over a wider upper frame of
reference the indicator is plotted as a
histogram and is used to confirm the
trends and determine possible cycle
turning points if you want to learn more
about the awesome oscillator here is a
great tutorial on how to trade with it
also the momentum indicator can also
generate decent divergence signals here
we have a regular divergence signaling
the end of the trend and here we have a
hidden divergence indicating a
continuation of the trend and of course
finally the MACD probably the most used
indicator for spotting divergences by
traders not by me personally in my
opinion the MACD is one of the worst
indicators but you can find some
divergence signals with it the regular
ones in particular like the obvious
signal on this chart now here is an
important tip divergences are more
reliable when you are using higher
timeframes a signal that is produced on
the 4-hour chart or on the daily chart
is more reliable than a signal produced
on the 15-minute chart
where the vergence is more reliable on
higher time frames because the market
doesn't move as fast and is easier to
define trends you'll see the pattern
developing and you'll have time to make
the correct decisions so if you learn
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