EASY H1 trading using divergence and candle sticks

Forming divergence or no?What do you think?

Very interesting thread

I base all my trading on the divergence between price and indicator as well as the price movement.

This is the only way of trying to create a leading indicator with decent results as I see it.

Hey Kumetto,

On your eur.jpy trade I would have waited for price to clearly be in resistance area and for a reversal candlestick to print before entering the trade. Remember you need more than just divergence to print to take a profitable trade. I like to have 3 reasons or more to enter a trade.

1.Is price in support/resist area.
2. Is divergence printing.
3. Has a high probability reversal candlestick closed.

Those are the 3 rules you need to live by when trading divergence. There are a few others that can be added in but they are a little more advanced and don't happen as often as these 3 do. These are the main rules that should never be ignored if you want to be a successful divergence trader.

Also I would recommend focusing on one indicator to spot divergence. I personally use RSI with setting 10 on the hourly. It's a little slower than setting 7 but it has served me well in spotting true divergence.

Also I see some problems in your CAD/JPY trade.

I have a chart of CAD/JPY posted below so we can reference and see the mistakes made.



Ok your RSI setting is a little too fast for the hourly. Adjust it to 10 so you can get a clearer indication of Divergence. 7 is good for lower timeframes for other types of trading. I do not recommend anyone trading divergence on anything lower than 1 hour unless they are really really good at trading divergence. If you are here reading this and trying to learn then this is not you.

Also if you are going to use two indicators to spot divergence make sure both are printing divergence clearly. Your CCI is is printing divergence but your RSI is not. Since both are not printing divergence in the same exact areas then I personally would not take this trade. You cannot go that far back on the hourly timeframe to try and spot divergence. The divergence you have on your RSI is a high from Nov 4th which was last Wednesday. Alot has happened with news and what not. You cannot go that far back and make an accurate divergence trade. Remember divergence is from the last swing high which is where I have my divergence marked on my chart which shows that no divergence has printed.

Keep studying charts and spotting true divergence, if you keep studying charts you will eventually know where divergence is likely to print before it even prints. Thank you for posting your charts with your trades, although they didn't end up being winners for you it will help others greatly in studying and learning what is divergence and what is not.

Hey Decima,

We would be happy to have you post some of your trades based off divergence. We have some people here that want to learn and we could use all the help! Have a great day!

Thank you for explanation. Went not so bad CJ +2 pips i closed it manualy and EJ +48

Awesome, I am glad you held and didnt get shaken out. Most traders are closing their trades in that situation at a loss. Good job!

When trading divergence, do you consider the trend of the current time frame, and the trend of higher time frames?

Great thread..love Divergence!! First time I saw this..Glad you started it and that it is still going.

I will be glad to help. I am a step further, where I have the divergence plotted to the chart as arrows. Look for the divergence at several time frames for confirmation.

I found that the 1h and the 15m is most relialble. The 4h can mislead you. The 1h is following cycle of the market in a good way. The Daily TF I believe should have just 5 days in a week to use. One major drawback with the Daily, is that divergence can arise and vanish during the period. This is only to be used for long term trading.

EURUSD currently looks like this.




Also bear in mind when trading after divergences, that the opposite is convergence. This will always succeed divergence. The divergence spots on the chart are giving a pull in that direction. Afterwards, be patient and follow the convergence.

Try differenct indicators or make you own. Test different ones, when you settle for one stay with it. It will never be 100% correct. If it gives you the right direction at the majority of times (>60% or higher), stick with it. The first ones that pops up in my head are RSI, CCI, OBV etc. Those are used for divergences trading. Also the MACD is often glanced at.

Learn to use it and to see its signals. Also the trickiest part with divergence is the entries. Also be patient here. I have found traditional support- and resistanceareas as most useful for this. Also compare price and the indicator at the peaks and the bottoms. This is very often a good suggestion for entry. Things will turn at these points.

Below are some charts that shows why you should look for divergence on several TF`s. This increases the likelyhood of the divergence beeing correct.

Also strong divergence on several TF should be plotted to the chart for later reference. When making trading decisions afterwards it is useful to know that the divergence exsisted. If there is a pattern of divergence in the direction this is a good signal/confirmation of the direction of the market.

I have highlighted the areas were the divergence has occured at the same time at the 1hour and the 15m TF. The pair is USDCHF.

Also the 3rd picture is of the calculation of the indicator on the 1h chart. I have attached an MA to that chart and the other chart of the 1h. This MA is a good point of reference for price and the indicator you use.





What will happen with USDCHF the coming week? I don`t know. The pair has moved close to 100 pips from the last good bullish signal. There has been a row of good bullish signals on the pair. Now it is close to resistance. I will wait for more signals on the pair.

The next is of a pair where I am strongly considering a short position for the coming week. The pair is GBPUSD. Look for the same confluence of divergence on the 1h og 15m TF. Also the MA(white) off the core calculation of the indicator and price.

Here the divergence is not alligned. We also see that divergence not neccessarily is an entry signal. It primarily tells you that the solidity/strenght of the current move is weak and that price will turn the other way.

PA (Price movement, LL, HL, LH, HH etc) and support, resistance as well as trendlines can be areas to look for entry. If you find divergence near such areas it increases the likelyhood of this as a turning point.

One last important thing to know when trading divergences is:

At the lower TF the divergence needs to be stronger. It means that price and the indicator should mathematically goes opposite of eachother (Rising/falling, Falling/rising).

When at the higher TF (>4h) a divergence can be spotted even if both the price and the indicator is rising/falling. By plotting lines you could still spot divergence this way.

To get the ones interested started, here is a simple template for MT4 with RSI. I don`t use RSI myself but I consider it to be decent enough for the purpose.



Same template, just added more info and made it usable for the 1h and 15m TF:



Explanation to follow:

This is a chart of GBPUSD. It shows what to look for. Mainly three things:

1) RSI (blue) in the indicator window and how price behaves. Plot lines where RSI and price is comparable (same levels).

2) The moving average of RSI (black) and price (white) in the indicaor window. This might reveal divergence of the last period they are measuring. Bear in mind that the price MA is sharing the window with the RSI. These are two different entities. The price MA will change afterwards to fit in the window. It is the present signal given this way you look at.

3) How is price related to its MA in the price chart compared to how RSI is related to its MA (black) in the indicator window. If one is above whilst the other is below this is worth noticing.



Nothing is 100%, this will not always be correct. Still this by itself should be sufficient to show correct the majority of times. When used with support/resistance/trendlines and PA. When swithching to the 15m TF, it will automatically change the setting accordingly.

Even though this is a system, use your brains as well. As important is what you see on the chart.

Good luck

Hey Guys/Gals,

Something developing. Im already in but willing to take another position if I see even more stronger indication of a reversal.

Hey all!
So just have really started divergence trading, and took this Regular Bullish Divergence. Just curious on what you think Piptime?

Hi Pipdreamin,
good news, you can change your name into "Pipmakin" now.

Setup couldn`t be better. Price came up from level 15 in rsi 5, which means realy OS, into divergence. (level 85 and 15 are key on rsi 5 for me)
Candle shape was good (pinbar), market opening was around and closing level was on fibo 50 from last swings too. (mesured from close to close)

Imagine we would get an alert when all those conditions happening...wow.

EXCELLENT ENTRY my friend! Wolf hit the nail on the head with his analyst. Similar situation on the NZD/USD as well, take a look at the chart below!

Another trade in the works. Lets see how she plays out!

TP HIT! Easy 120 pips!