Many traders that are using technical analysis for their forex strategies are focusing primarily on singles they are giving. But there are also hidden signals in some indicators such as: MACD, RSI, Stochastic, Momentum, and other oscillators. These hidden signals are called divergences. Divergence is one of the most impressive techniques in technical analysis. In forecasting currency movements the more advanced traders are paying much attention to it. Amazing results can be achieved trough to it. The divergence is characterized by the gap between the chart and the indicators, or more precisely the direction of movement of the price and the indicator.
In the last years, more and more traders are paying attention to the divergence. In combination with other techniques can be achieved amazing results and profits.

Divergence Itself gives us clarity of an impending change in the trend or a continuation of the trend. There are two main types of divergences: normal (bullish or bearish) and hidden (bullish or bearish)Normal (negative) divergence:

Bullish divergence - in this type of divergence as it is seen from the chart. Price draws two bottoms, the second is lower than the first, but in this case the indicator RSI draws two bottoms but the second is higher than the first. In this kind of divergence we have a buy signal, it is mandatory to place a stop 15 pips from the second bottom. Depending on the risk management it is possible to place a stop on a short distance, for example 10 or 5 pips


Bearish divergence – looking at the chart, we see that in this type of divergence, price draws two tops, as the second one is higher than the first, while the RSI indicator draws two tops but this time the second is lower than the previous. It is recommended to sell when we have a bearish divergence and we place a stop 15 pips from the highest peak. It is possible to place a stop on 5 or 10 pips.

Hidden (positive) divergence. This type occurs more frequently and is continuing in the direction of the trend.

Bullish divergence - in this type of hidden divergence, price draws two bottoms, the second bottom is higher than the previous one, while at the same time the indicator also draws two bottoms, but the last one that is drawn is lower than the previous. It gives us a signal for the continuation of the uptrend
The strategy here is to place the stop loss 15 pips below the second floor and order for long position on the highest point of the second bottom.



Bearish divergence - in the bearish hidden divergence the price draws two tops, as the secondone is lower than the previous, while the indicator at the same time draws two peaks, but the second is higher than the previous. It gives us a signal for the continuation of the downtrend


The strategy in this kind ofhidden divergence is to put the stop loss 1 pip from the highest peak, and put a sell order on the lowest point of the second peak.



Divergence is an important tool for predicting future price. Depending on whether the divergence is normal or hidden, we can expect a reversal of the trend or its continuation. It is mandatory to place stop loss because the price can go seriously against our direction.
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