Divergence Trade Strategy (3) Why we delay being aware of occurrence of divergence?

Contents

Introduction
Why we delay being aware of occurrence of divergence?

Introduction

This is the third article about divergence trade strategy.

Divergence Trade Strategy (1) Difference between Regular Divergence and Hidden Divergence

Hidden divergence implies trend continuation, and Regular divergence implies trend reversal. The most important difference from viewpoint of trade strategy is that Regular divergence is used for counter trend, and Hidden divergence is used for trend follow.

Divergence Trade Strategy (2) How to avoid fake of divergence

How should we avoid the "fake" of divergence? We should Judge high probability to win by not only the occurrence of divergence but also other factors. Also, we should watch whether to exceed last high or fall below last low and pay attention to the price action until just before the entry.

We can easily find divergence by looking at past charts. But isn’t it hard to recognize the occurrence of divergence in the ongoing chart?

If we are too late to notice divergence and the chart has already passed the perfect reversal point or great point of buy on dip or sell on rally, we have to give up.

Why we delay being aware of occurrence of divergence?

So why we delay being aware of occurrence of divergence?

This is my experience, but I think it’s because we didn’t “predict and wait” for divergence.

It is often said that “waiting” is important in forex trading. However, it’s no good just sitting down in front of the chart, gazing at the monitor, and just waiting. (Except for those who like to look at charts all the time, and for scalpers.)

Both regular divergence or hidden divergence, we analyze charts and indicators that are likely to occur divergence and create scenarios.

You may consider how many hours later will divergence occur. For example, if you use the 1-hour chart, you may think “Let’s wait 5 or 6 bars in H1 chart until the European time”.

This is also one of the reasons why the most appropriate timeframe for the strategy using divergence is “1 hour chart”. I think it’s easiest to wait divergence. You can wait while doing other things, and you can wait while doing your main business.

Sometimes it goes just same as the scenario, and sometimes it doesn’t. It is better to have multiple scenarios. For example,

Scenario 1: A scenario that hidden divergence occurs, and the trend continues
Scenario 2: A scenario that hidden divergence does not occur and the trend changes

If you predict in this way, you can easily make entry when the price moves according to the scenario, and you can respond even if price moves away from multiple scenarios. The chart below is an example of scenario 1 and scenario 2 above.

It is also important to recognize the environment whether trend follow is advantageous or counter trend is advantageous.

Hidden divergence and regular divergence often occur continuously. In situations where we consider current trend is very strong and trend follow is advantageous based on market environmental, we may wait until the occurrence of hidden divergence after divergence. Conversely, in a market with weak trends, we may wait until the occurrence of regular divergence after the hidden divergence.