Learning to trade using Divergence is relatively simple.
What is Divergence ? and how do I use it ?
Divergence occurs when an indicator and the price of an asset are heading in opposite directions, and the most common way to see Divergence on your chart is to install the MACD ( Moving Average Convergence Divergence ) onto your chart, this can be found in the Indicators Library of Meta4 and Tradingview.
Before installing the MACD onto you chart, go into its settings and change the default settings to:
Fast EMA: 12
Slow EMA: 26
Apply to : Close
Now save and install.
I have found these settings to work really well when trading binary options on the five minute and fifteen minute time charts.
As you can see in the diagram above, the price of the asset has climbed higher than the previous high, but on the MACD (appears in a seperate window under main chart window ) the price is lower than the previous high, and this is Divergence, meaning that the price of that asset is about to fall, and if the asset price is lower than the previous low on your chart, but the MACD is higher then the asset price is about to rise.
Although I have never traded using Divergence alone, I do use it as a confirmation of asset price direction continuation or change, especially when I see divergence on the MACD and the asset price has hit one of my support and resistance lines.
The asset price is going up higher than the previous high (on a five minute chart ),and has bounced back down from a support and resistance line, but the MACD is showing the asset price to be lower I would be looking at a possible fifteen minute to one hour PUT trade.
The MACD is an excellent indicator to have in your trading arsenal and once you get used to using it, it will help in your decission making, I’m sure.
As always try everything on a demo account before trading live.