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Home » How to Trade Divergences in Forex
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How to Trade Divergences in Forex

By Yasher RizwanJune 21, 2025No Comments2 Mins Read1 Views
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Mastering divergence trading can give you the edge to catch trend reversals early or confirm trend continuations — and it’s not as complicated as it sounds.

In this guide, we’ll show you how to spot and trade regular and hidden divergences effectively using real-world examples.


🔍 Trading Regular Divergence

Let’s start with regular divergence, which often signals a trend reversal.

Take this daily USD/CHF chart as an example:

✅ The pair has been in a strong downtrend, confirmed by a descending trendline.
✅ Price action prints lower lows — but wait!
✅ The Stochastic oscillator forms a higher low.

This mismatch between price and momentum is a regular bullish divergence, hinting that the bearish move may be running out of steam.

📈 What happened next?
USD/CHF broke through the trendline, kicked off a new uptrend, and rallied over 1,000 pips in the following weeks.

Pro Tip: Look for extra confirmation — like tweezer bottoms or candlestick reversals — before pulling the trigger. Divergence plus a reversal pattern = powerful entry combo.


🔍 Trading Hidden Divergence

Now let’s explore hidden divergence, which usually points to trend continuation.

On another daily USD/CHF chart, we spot this setup:

✅ Price forms a lower high — consistent with a downtrend.
✅ But the Stochastic oscillator shows a higher high.

This is a textbook example of hidden bearish divergence, suggesting the trend may resume its downward path.

📉 And it did.
Price respected the trendline and dropped nearly 2,000 pips over the following weeks.

Lesson learned: Hidden divergence can offer early signals to rejoin a trend before momentum picks up again.


🧠 Final Thoughts on Trading Divergences

Trading divergence isn’t just about spotting a mismatch — it’s about recognizing momentum shifts before price catches up.

Whether you’re using RSI, MACD, or Stochastic, always confirm divergence with price action, trendlines, or candlestick formations.

✅ Regular Divergence = Reversal Signals
✅ Hidden Divergence = Trend Continuation

With practice, you’ll start seeing divergence setups form naturally — giving you an edge to enter trades with lower risk and higher reward.

Stay Educated with Daily Forex Pakistan.

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