MASTER-CLASS on Divergence.
Get ready to master the most profitable tool in trading for predicting the tops and the bottoms.
A bit complicated, but if you read this thread, you will master it completely for scalping and swing trades.
Share it! All new traders need it.
Part-1
Get ready to master the most profitable tool in trading for predicting the tops and the bottoms.
A bit complicated, but if you read this thread, you will master it completely for scalping and swing trades.
Share it! All new traders need it.
Part-1
Aim- To help traders identity divergence AND learn entry triggers.
Most traders can identity a divergence but don't know how to use it to time the entry.
We will try to master the "entry" in this thread.
All real-world trades taken because of divergences have been shown below.
Most traders can identity a divergence but don't know how to use it to time the entry.
We will try to master the "entry" in this thread.
All real-world trades taken because of divergences have been shown below.
When price moves in a certain direction, the momentum oscillator too should move in the same direction (and manner)
Eg. When Price makes a higher high, the momentum oscillator too should make a higher high. This is called convergence.
See Example below.
Eg. When Price makes a higher high, the momentum oscillator too should make a higher high. This is called convergence.
See Example below.
In a rare occurrence, the momentum oscillator and the price don't follow a similar path. This phenomenon is called Divergence.
It occurs because the average change in the lookback period (the time period of the oscillator) is in a different direction as compared to the price.
It occurs because the average change in the lookback period (the time period of the oscillator) is in a different direction as compared to the price.
Divergences are used to find a potential reversal on the larger time frame or a swing/scalp opportunity on the lower time frame.
A minimum of 4-hour time frame is preferred.
Since they may fail ( very rarely) it is better to accompany the entry with further confirmations.
A minimum of 4-hour time frame is preferred.
Since they may fail ( very rarely) it is better to accompany the entry with further confirmations.
Important points.
.We will cover RSI divergences. MACD and OBV will be covered after a master-class on those indicators(coming soon)
.Prices in this thread refer to the lows.
.Only the closing value is chosen for studying divergences since the source for RSI is the closing value.
.We will cover RSI divergences. MACD and OBV will be covered after a master-class on those indicators(coming soon)
.Prices in this thread refer to the lows.
.Only the closing value is chosen for studying divergences since the source for RSI is the closing value.
Bullish Divergence Market-Structure.
-It is formed when the downtrend price move is going to reverse.
The LOWS of the price and oscillator are not in sync.
-Useful in predicting the bottom.
To find bullish divergences, ALWAYS LOOK AT THE LOWS of the oscillator and the price.
-It is formed when the downtrend price move is going to reverse.
The LOWS of the price and oscillator are not in sync.
-Useful in predicting the bottom.
To find bullish divergences, ALWAYS LOOK AT THE LOWS of the oscillator and the price.
Tips.
-Don't look for divergences in a non-trending market.
-There must be clear new levels i.e. Higher High, Higher
Lows or Lower Highs and Lower Lows formed.
-Divergences are very reliable, adding further price movement confirmations leads to a more profitable setup.
-Don't look for divergences in a non-trending market.
-There must be clear new levels i.e. Higher High, Higher
Lows or Lower Highs and Lower Lows formed.
-Divergences are very reliable, adding further price movement confirmations leads to a more profitable setup.
1. Strong Bullish Divergence.
The price makes a lower low but the oscillator makes a higher low.
This means, although the price is decreasing, the overall average rate of change in the chosen period is increasing.
i.e. the sellers are not selling at the same momentum..
The price makes a lower low but the oscillator makes a higher low.
This means, although the price is decreasing, the overall average rate of change in the chosen period is increasing.
i.e. the sellers are not selling at the same momentum..
Entry using the same chart above.
The concept of-
.Supply absorption candle
.Momentum confirmation
.Supply zone re-test
.Adding position on re-test confirmation
is illustrated in this trade.
All these have been used in sync with Divergence for a high probability entry
The concept of-
.Supply absorption candle
.Momentum confirmation
.Supply zone re-test
.Adding position on re-test confirmation
is illustrated in this trade.
All these have been used in sync with Divergence for a high probability entry
2. Medium Bullish Divergence
-The price makes a double bottom (same level as earlier low) and the oscillator makes a higher low.
This means that at the same price levels, the momentum is increasing.
Illustration with a trade example presented below.
-The price makes a double bottom (same level as earlier low) and the oscillator makes a higher low.
This means that at the same price levels, the momentum is increasing.
Illustration with a trade example presented below.
3. Weak Bullish Divergence
-The price makes a lower low but the oscillator has the same low levels(double bottom).
This means, even though the price is decreasing, the momentum is intact.
Illustration of weak divergence presented below.
-The price makes a lower low but the oscillator has the same low levels(double bottom).
This means, even though the price is decreasing, the momentum is intact.
Illustration of weak divergence presented below.
Trade using the same setup.
This was one of the most beautiful trades I have ever taken.
Pure price movement.
Explained in the chart-
.Confirmation of bullish divergence
.Bullish candle confirmation entry
.Channel Break-out
.Capital addition upon retest
Exit upon S/R Break
This was one of the most beautiful trades I have ever taken.
Pure price movement.
Explained in the chart-
.Confirmation of bullish divergence
.Bullish candle confirmation entry
.Channel Break-out
.Capital addition upon retest
Exit upon S/R Break
Here is another trade that was taken based on a weak bullish divergence with candlestick confirmations.
1. Divergence confirmed.
2. Supply absorbing candle appears.
3. Doji in a down-trend.
4. Bullish kicker, entry made above candle in point 2.
1. Divergence confirmed.
2. Supply absorbing candle appears.
3. Doji in a down-trend.
4. Bullish kicker, entry made above candle in point 2.
4. Hidden Bullish Divergence. (I don't trade it)
-In a weird manner, the price increases, the momentum oscillator value decreases.
This signifies that even at a reducing momentum, there is enough buying interest to push the price up.
Explained with a trade setup below.
-In a weird manner, the price increases, the momentum oscillator value decreases.
This signifies that even at a reducing momentum, there is enough buying interest to push the price up.
Explained with a trade setup below.
This completes the Part-1 of divergence master-class.
Remember, for bullish divergence, ONLY LOOK AT THE LOWS.
Read it several times. It will change your trading game.
Will release Part 2 soon (Bearish divergences)
Please share it to help a fellow trader.
Love,
EmperorBTC
Remember, for bullish divergence, ONLY LOOK AT THE LOWS.
Read it several times. It will change your trading game.
Will release Part 2 soon (Bearish divergences)
Please share it to help a fellow trader.
Love,
EmperorBTC
Loading suggestions...