How to trade Divergence correctly

Divergence is a powerful way to determine the price retracement or reversal. By its definition, divergence is a disagreement of the price movement and the oscillator/indicator. There are many indicator used to detect divergence such as Stochastic, CCI, RSI, MACD and some others. If we trade this divergence correctly, we can gain more profits from Forex. See how divergence works on price chart below.

1. Bullish Divergence

If I am not mistaken, Bullish Divergence is a divergence that makes the price move upward (Bullish). As you see above chart, price has made twice lower lows but the MACD and CCI cannot make lower lows and start showing a higher lows. This conditions is known as bullish divergence. See how the disagreement between the price and the oscillator above. Can you spot it?

2. Bearish Divergence

Bearish divergence is the opposite of the Bullish divergence. This divergence will cause the price to move downward. 

On the Bearish divergence, price has made at least 2 significant higher high but the indicator shows lower high. This disagreement is called as Bearish divergence. As a result, the price moving downward. 

Divergence is a good trading system if we practice it well. We buy on the bottom and sell from the top price so the profit should be higher than any other method. But, be careful since divergence can occur several times before the price really reverse.