Please
keep in mind that we use divergence as an indicator, not a signal to enter a
trade!
It
wouldn't be smart to trade basely solely on divergences since too many false
signals are given. It's not 100% foolproof, but when used as a setup condition
and combined with additional confirmation tools, your trades have a high
probability of winning with relatively low risk.
There are
a bunch of ways to take advantage of those divergences.
One way is to look at trend lines or candlestick formations to confirm whether a reversal or continuation is in order.
Another way is to make use of momentum tricks by watching out for
an actual crossover or waiting for the oscillator to move
out of the overbought/oversold region. You can also try drawing trend lines on
the oscillator too.
With
these nifty tricks, you can guard yourself against false signals and filter out
those that'll be very profitable.
On the
flip side, it is just as dangerous trade against this indicator.
If you're unsure about which direction to trade, chill out on the sidelines.
Remember
that taking no position is a trading decision in itself and it's better to hold
on to your hard-earned cash than bleed Benjamins on a shaky trade idea.
Divergences don't appear that often, but when they do appear, it'd behoove you to pay attention.
Regular divergences can help you collect a big chunk of profit because you're able to
get in right when the trend changes.
Hidden divergences can help you ride a trade longer resulting in bigger-than-expected
profits by keeping you on the correct side of a trend.
The trick
is to train your eye to spot divergences when they appear AND choose the proper
divergences to trade.
Just
because you see a divergence, it doesn't necessarily mean you should automatically
jump in with a position. Cherry pick your setups and you'll do well.
