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Now look at your preferred indicator and compare it to price action. The great thing about divergences is that you can use them as a leading indicator, and after some practice its not too difficult to spot. Divergences on shorter time frames will occur more frequently but are less reliable. This makes the risk on your trades are very small relative to your potential reward. Just think higher highs and lower lows. If you draw a line connecting two highs on price, you must draw a line connecting the two highs on the indicator as well. On those time frames, theres just too much noise for our taste so we just stay away.
All you can do now is wait for another swing high/low to form and start your divergence search over. Draw lines on successive tops and bottoms. The truth probably lies somewhere in between. If you see any little bumps or dips between the two major highs/lows, do what you do when your significant other shouts at you ignore. Ridin the slopes, divergence only exists if the slope of the line connecting the indicator tops/bottoms differs from the slope of the line connection price tops/bottoms. If price is making higher highs, the oscillator should also be making higher highs. Make sure your glasses are clean. The best thing about divergences is that youre usually buying near the bottom or selling near the top.
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Whichever indicator you use, remember you are comparing its tops or bottoms. Immediately go see your optometrist and get some new glasses. Hidden divergence usually triggers trend continuation. Now draw a line backward from that high or low to the previous high or low. Lower low than the previous low. You get less false signals. Figure 1, the Setup, for the first signal (in dark red which occurred between November and December of 2006, we have almost a textbook case of classic bullish divergence. Its just like picking out what to wear to the club you gotta be fly and matchin daily forex signals app yo! If a false signal is indeed the case, stop-losses are always firmly in place not so tight that you get taken out by minor whipsaws, but also not so loose that the beneficial risk/reward ratio will be skewed.
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