If you have been trading in forex system then you must be familiar with the term divergence. This is a very common term that tells you about a specific trend in forex trading. Divergence tells you that price and momentum are shifting away from the trends and you have to adjust your decisions accordingly. There are different kinds of divergences that can occur in forex trading. Basically bullish divergence occurs when the price reaches to new low h8ile MACD cannot reach its new low. This kind of divergence tells you that downtrend is almost ending and you will be soon facing an uptrend. Similarly there is bearish divergence that occurs when price reaches to new high and MACD cannot reach its high. This will mean that an uptrend is ending a downtrend is very near.
Divergence is a function of price and momentum that is located on RSI. There are some authors that do not agree with the theory that divergence can signal a trend reversal. Some of these authors have done very extensive research and they prove that divergences never signal a trend reversal. Lots of people trade according to bullish divergence and they make good use of its indicator. They believe in the theory that bullish divergence will always signal a trend reversal and as I have mentioned above when a bullish divergence occurs that will signal that a downtrend is ending while an uptrend is near. You can make your moves and adjust your decisions accordingly because when an uptrend happens, you will be able to gain more profits. The basic purpose of these divergence indicators is to locate the higher high and lower lows of the charts. These divergences help lots of traders to shift their momentum because they adjust their prices according to divergence trend and in the end they become part of an uptrend.
There are normal divergences that traders use to locate trend reversals while at the same time there are hidden divergences that traders can use to locate trend continuation. Important thing is not to use divergence indicator alone to make your decisions because lots of times it can happen that your divergence indicator may not provide you with right trend reversal information and in the end you will be stuck in that same downtrend but all of your selling and buying decisions will be for an upcoming uptrend. You need to trust all other indicators as well and gather knowledge of the market properly before making your final move. Always eye on long term trends and use your divergence and reversals accordingly. Keep everything simple so that you can take care of everything properly because sometimes people buy a very complex forex trading system that they never understand properly. You need to see all the trends very properly and your gains and profits must be listed where you can see them easily. Keep above mentioned things in mind and always use bullish divergence indicator according to the situation.