If you are looking to break into Forex trading for the first time then you will want something that is relatively low risk, not only to help you increase the amount of money that you have coming in to be used on more profitable ventures, but to also get a feel on how this type of trading works. There is one type of trade that fits both of these ‘requirements’, and it is recommended time and time again, this is Forex divergence trading. So what is it all about?
The goal of this type of trading is to buy near the bottom a trend, and sell near the top. You will of course have to watch the markets closely to see what the trends are, and that is what divergence trading is all about. You will need to study a number of charts to see whether there is a chance that divergence is occurring, if so then it I time to start trading, if it isn’t then just sit back for a while. It should be remembered, this isn’t a full proof method and there could be a number of ‘false signals’, however it is fairly risk free, and with a bit of practice you will know when to act and when to sit back.
The first thing to look at is the chart which dictates the price of the trade that you are looking to buy or sell. If the chart a single high, followed by a higher high later on, or perhaps a low followed by an even greater low then there is a chance that you can jump on the forex divergence trading bandwagon. Although these both need to be obvious, if the pattern seems irregular then you will want to give this trade a miss for a while.
Ok, so once you have finished establishing whether you may be able to trade under this principle it is time to grab your pencils. You will want to draw a straight line between the points that you are looking for, for example, connecting the two ‘highest points’ together or the two lowest points (depending on which sort of price trend has been spotted).
You will then want to grab a chart of whichever price indicator you use. This is what we are going to use to decide whether any divergence has taken place. You will need to grab your pens again and draw a line between either the two highest points or the two lowest points, depending on what you did in the previous task. They need to line up vertically with the other ones in order to establish whether divergence has taken place or not.
If the two lines look different then divergence has taken place, so for example if one line is ascending whereas the other is descending. In this case you will want to trade as soon as possible, don’t worry if you are a little late though, you will always get another chance on a different trade. The good thing about forex divergence trading is that it is always something that you can look into, and more often than not you will stand to use money using this particular method.
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