Due to the forex market’s complexity, it is hard to find an optimum indicator to foresee the potential development of market trends, if any such indicator exists at all. However, forex divergence may be one of the best indicators to reveal how the market may behave in the periods to come, thereby providing the investor with the opportunity to make the best justified trading decisions. If you are interested in how to trade divergence in forex, this article is right for you. Through the Immediate Edge Review you can have the best deal now.
Overview of Convergence and Divergence in Forex
Let’s first define the terms convergence and divergence.Convergence in forex describes a condition under which an asset’s price and the value of another asset, index or any other related item moves in the same direction. For instance, let’s assume the situation in which market prices show an uptrend, and so does our technical indicator. In this case, we face continuing momentum, and there is high probability that the trend will persist. So, here, the price and the technical indicator converges (ie follow the same direction), and the trader may refrain from sale, as the price is likely to further grow.
- Divergence in forex, to the contrary, describes a condition under which an asset’s price and the value of another asset, index or any other related item moves in opposite directions. For instance, if we consider again a situation where market prices grow and the technical indicator’s value drops, we will face decreasing momentum, and thus signs of trend reversal. The price and the technical indicator diverges, and therefore the trader may opt for running sale for procuring the highest profit.
So, basically, forex divergence trading and convergence trading focus on the same tools and mechanisms and embrace the same actions performed by the trader for evaluating market dynamics.