Divergence is one of the most reliable classic technical signals. Over the years, by simply using divergence, traders have successfully been making a 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
Time Frame: M15 and higher
What is Divergence
As a rule, the 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 correctly, it allows us 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 time frame will contain a large number of false signals. In this respect, higher time frames are more reliable.
An experienced trader can notice divergence on the graph at first glance. But what if there is a huge number of charts to analyze and the trader is not experienced enough?
Today I want to introduce an indicator for automatically determining price discrepancies on charts. At the end of this article, you will find a link to download this indicator for free. The indicator is based on the MACD oscillator.
What does the Divergence Indicator Looks Like
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, enough to pull the indicator from the Navigator window into the divergence indicator.
Very good now – all clear and understandable. As you can see at the screenshot, the indicator also showing the hidden divergences.
Search Divergence with Indicator
Indicator, of course, is far from the ideal – many signals are quite controversial. But this indicator helps to quickly see the all picture – especially when you analyze 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 uses these signals, but I recommend to consider only the most accurate signals. Look on the next signal on the chart (highlighted with additional red lines).
Do 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 going to the rise.
And now – an example of a hidden bearish divergence:
The downward movement was interrupted with correction, and the price grows up to the level 1.25065. The Divergence Indicator showed the hidden bearish divergence – is a continuation of the downtrend. It is what we saw on the chart.
As you can see, the deals using divergences sufficiently are accurate, and we make them almost at the peaks of prices. For this reason, it is necessary to recognize them very quickly and make a decision about making a deal.
Let’s look at some examples of divergence signals.