In your opinion, how effective is divergence trading?

Beginner Questions
1

The BabyPips school describes divergence trading as a “low risk way to sell near the top or buy near the bottom of a trend” and that it offers traders a way to “know ahead of time the perfect place to exit instead of watching your unrealized gains vanish before your eyes because your trade reverses direction”.

This sounds too good to be true, and therefore probably is. So what’s the catch? Why would divergence trading ignored by the majority of traders, if it really was as effective as this article is trying to make out?

What’s your opinion on divergence trading’s effectiveness?

Thanks

2

The catch is that they don’t always work on their own. Traders probably pay attention divergences especially in a trending environment but their final decisions are supplemented by other indicators and candlestick analyses.

3

[QUOTE=“Huck;611407”]The catch is that they don’t always work on their own. Traders probably pay attention divergences especially in a trending environment but their final decisions are supplemented by other indicators and candlestick analyses.[/QUOTE]

Thanks for the response. What would you recommend using to give confirmation when trying to trade divergences?

4

I addition to the divergence,

Trend Indicators- Eg, EMA 20, trendlines etc- the divergence should be in accordance with the market trend

Candlesticks- that indicate trend reversal and continuation.

A good example:

EURUSD H4.jpg700×395 30 KB

A negative hidden divergence,
The EMA 20- marks the trend as bullish
A reversal candle-tailed bar- rejected off the EMA20 after the retracement.

Hope this helps

5

Divergence is effective if you know how to use it. I know a trader who use Divergence. And he is making real money with it. He is a long term traders. It’s about how effectively you will use an indicator for your trading.