Trading Bullish Divergence with Fibonacci levels are some of the most profitable ways to trade the forex market. The key is to know what you’re doing and have an idea of when to get in, when to get out, and how much risk you should be taking on at any given time. To help you with your trading, here are 5 Tips on How to Trade Bullish Divergence based on years of experience and countless hours of watching what works and what doesn’t work in the Forex market.
What is Bullish Divergence?
Bullish divergence occurs when the price of an asset creates higher lows, while the corresponding indicator creates lower lows. This indicates that although the overall trend is down, the momentum is starting to shift. As a result, there is a potential for the price to start moving up.
Moving Average Convergence Divergence
MACD is a great tool for trading divergence. By looking at the relationship between two moving averages, it can help you spot when the market is about to turn. Fibonacci trading is another great tool for spotting reversals. By identifying key Fibonacci levels, you can get a better idea of where the market is likely to turn. This is where price starts to retrace in order to form a new support level. If price does not continue the trend and instead moves back up, then this is considered bullish divergence and may be an opportunity for a profitable trade. Similarly, if prices start to fall but then reverse and make higher highs than before, then this is also considered bullish divergence and could be used as an opportunity for profitable trade.
The Stochastic Oscillator is a momentum indicator that is used to gauge the strength of a trend. This does not provide an indication for when prices will change direction, but can be used as a measure of overbought or oversold conditions. When the price is below the 20-period EMA and above its 40-period EMA, it would indicate that it’s oversold and may be an opportunity to buy. Conversely, when the price is above its 20-period EMA and below its 40-period EMA, it would indicate that it’s overbought and may be an opportunity to sell.
Relative Strength Index
The Relative Strength Index (RSI) is a technical indicator that measures the speed and change of price movements. The RSI oscillates between 0 and 100. A reading of 70 or above indicates that a security is becoming overbought or overvalued, and may be ripe for a correction. A reading of 30 or below indicates an oversold or undervalued condition. Trading divergence occurs when the RSI diverges from the price action of an asset.
In conclusion, bullish divergence can be an indicator of a potential bullish trend. However, the same is true for bearish divergence and vice versa. You should always trade with your gut feeling as well as your intuition when it comes to trading patterns. You will eventually develop your own opinion of what is bullish and what is bearish, but you should always rely on other indicators and market signals before entering a trade.