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How to Trade Divergences in Forex

Mastering divergence trading can give you the edge to catch trend reversals early or confirm trend continuations β€” 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.


πŸ” Trading Regular Divergence

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

Take this daily USD/CHF chart as an example:

βœ… The pair has been in a strong downtrend, confirmed by a descending trendline.
βœ… Price action prints lower lows β€” but wait!
βœ… 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.

πŸ“ˆ 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 β€” like tweezer bottoms or candlestick reversals β€” before pulling the trigger. Divergence plus a reversal pattern = powerful entry combo.


πŸ” 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:

βœ… Price forms a lower high β€” consistent with a downtrend.
βœ… 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.

πŸ“‰ 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 β€” 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.

βœ… Regular Divergence = Reversal Signals
βœ… Hidden Divergence = Trend Continuation

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

Stay Educated with Daily Forex Pakistan.

Yasher Rizwan

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