traders in financial markets should understand the huge number of deadlines and constantly pump their knowledge, because standing still in this area of success is impossible to achieve. This is especially true for chart analysis. The main terms in this topic are convergence – that is, rapprochement and divergence – that is, bearish divergence.
In today’s article we will talk about the second, namely examples of trade divergences.
What is the discrepancy
As mentioned in the opening section of our article divergence is called the process of bearish discrepancies in the chart. This is the discrepancy between the value of certain investment assets and the selected technical analysis indicators.
Due to divergence, the market participant is able to see the extent to which asset price highs and indicator highs vary. The scale of the discrepancy shows to what extent demand for financial assets is declining and how it affects its value.
It is worth noting that there are many types of discrepancies.
It is most commonly defined in a chart using indicators such as:
MACD; Stochastic indicator; Rsi.
can also be followed by a trendline.
Trading functions during Divergence
When trading you should take into account local maximum values and minimum values and also understand that there may be several of them.
If the discrepancy has several extremes, it can be called broken.
Experienced market participants say it is difficult to identify many divergences (double or triple) in the long run, so they need to make trading decisions quickly. In addition, experienced players do not recommend beginners to practice divergences with multiple peaks, as this rarely brings profits. Beginners very often underestimate the importance of such a term as divergence.
In conclusion, I would like to draw attention to the technical intricacies of trading during the discrepancies in the chart.
First, the view that the discrepancy indicates actual maximum price values is misleading. In each observation they will decrease.
Second divergence serves to notify a market participant the value of the assets or the occurrence of reversals and adjustments.
If you want to enter into a contract to sell financial assets during market divergences, it is better to do so when opening a regular candle after the signal. If you see that the discrepancy begins when your positions have already been opened, it is best to reduce their volume.
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