The primary responsibility of a trader is to watch price changes and then open a trade in response to these observations. The situation is usually evident when a significant pattern is seen on the price chart. On other occasions, the progress is sluggish, or the price stabilizes. To cope with them, one strategy is to look for divergences. This article covers what trading divergence is and why it is relevant for traders on Binomo.
What is the divergence?
Use specialized oscillator-based technical analysis tools to recognize divergence. You can choose from several options on the Binomo platform according to your goals. They will diverge somewhat. However, the basic guidelines remain the same.
Whenever it pertains to spotting the trend, a trader has several options. They may only need to create a trend line. Still, they are also capable of making judgments by analyzing numerous periods, and they could also make use of a moving average. The trend may be robust or feeble. Utilizing a convergence, we can determine its strength.
Convergence occurs when a specific oscillator and price rise or decrease simultaneously. The prices and the oscillator may hit a high during an uptrend and then hit another higher than the prior one. They may create a low throughout the downtrend, followed by another lesser than the preceding one.
Divergence is the result of only the price making a more significant high and the oscillator making a lower high during an uptrend. Similar situations occur when the oscillator produces a higher low during a downtrend while the price makes a lower low. You might infer that the trend is waning and will likely change direction soon.
Oscillators offered by Binomo
To detect divergence, you can use a variety of oscillators. The Moving Average Convergence Divergence (MACD) is one of them. Below is an example chart that uses the MACD. While the MACD is rising and creating a higher low, the price is declining and making a lower low. It can be interpreted as indicating that the trend is about to change.
Another type of oscillator you might use is the stochastic oscillator. A decline may be seen once more on the chart below. However, just the price is falling. Stochastic is increasing. The pattern will shortly change.
Best entry points for trading with the divergence
Many traders believe that the signals derived from divergences are insufficiently robust. They contend that before the trend reverses, the oscillator may exhibit divergence for a considerable time. The dilemma then becomes when to start a transaction.
You should use price action strategies and stick to candlestick patterns to discover the best points of entry with divergences. For instance, you might look for a pin bar at an uptrend’s peak or a downtrend’s trough and place your trade immediately after it.
Another oscillator that might be quite useful in identifying the divergence is the Relative Strength Index (RSI). Check out the graph below. The divergence is visible on the RSI. Watch the price bars now. The pattern of a double top has emerged. It confirms that now is a suitable time to start the trade.
Conclusion
The oscillators aid traders in detecting a divergence in the charts. Although it does not always happen that there will be a divergence, finding it can occasionally be challenging because you could very well be boiling the ocean without even knowing it. However, once it is apparent, you may anticipate that the tendency will soon change. To determine the optimum entry points, utilize additional strategies, such as candlestick pattern recognition.
Binomo provides a demo account. You paid nothing to access it. Additionally, it is continually refilled with virtual money, making all your trades on them risk-free. This is the ideal situation to practice spotting divergences and locating the entry points for your profitable trades on Binomo.