How to trade Stochastic divergence with TDI and trendline confirmation

Stochastic is a good indicator which can help us to trade forex. Personally, I use stochastic to detect any divergence occurrences in M15 (my favorite time frame). On this post, I want to show you how to trade Stochastic divergence with trendline breakout and TDI confirmation. To trade Stochastic divergence, the following rules must be met:

• Divergence is exist (both hidden or normal divergence)
• Trendline breakout
• TDI cross over
• Any time frame

Divergence is actually divergence when it break the trendline. If the price still moving and no breakout or reversal candlestick pattern exist, we cannot call it as divergence. This technique is good for scalping since we only take few pips (10-20 pips each position) Higher timeframe will produce more pips. Here is the SELL example with hidden divergence:

How to trade:

First, on retracement, watch the stochastic movement. On picture above, when the price retrace and the retracement makes lower high, the stochastic make new higher high compared to previous high value. This condition called hidden divergence. BUT, hidden divergence will be broken or failed and the price will continue to move higher. That's why I always use a trendline to determine whether the retracement process has finished and will continue the down trend.

To draw the trendline, connect the 2 previous lows on the retracement process (white line). When price move back to the trend direction and break this line we go short. See if TDI also gives the signal. In sell condition, the green line should cross over the red line from above. The buy condition is the opposite of the above rule.

Actually the basic of this system is trendline breakout. When we use trendline breakout in proper way, green pips will always be ours.

Happy trading