Regular divergence is used by traders to identify signs of a possible trend reversal. You will note that you can have either a bullish or bearish divergence, and you should be adept at spotting either one.
Bullish Regular Divergence
If the price action in the currency is making lower lows, but the oscillator is making higher lows, then this is considered a bullish regular divergence. This will generally occur in a downtrend, and it may be a sign of a trend reversal. In other words, it may be time to get long the currency in order to profit if it heads back up in value.
When the price continues to make new lows, but the oscillator is struggling to do so, this may suggest that the bears in the market have lost their momentum, and the bulls may be ready to take over.
Bearish Regular Divergence
You might have guessed it, but bearish regular divergence is when the currency pair is trading at higher highs, but the oscillator is making lower highs. This means that the oscillator is not keeping up with the price action seen in the pair, and it may also indicate that the currency pair no longer has the momentum it needs to sustain the bullish run that it has been on up to this point.
You want to make sure that you look for potential shorting opportunities when you see a divergence like this. It is a sign that the bulls do not have control over the market anymore, and it may be time to start betting against the pair as things may be ready to take a dive. Keep this in mind when this divergence appears.
Leave a reply