Divergence are lucrative and effective method to trade, however many people find it difficult to use so I am giving important points one should keep in mind:
1. RSI divergence should be used when formed in overbought or oversold Zone. Others may be used in combination with other studies but NO trade solely based on it.
2. Since we are handling here the situation against the trend and looking for reversal, we should be prepared mentally and be protected with reasonable Stop Loss.
3. Divergence formed at the bottom after a bearish run works better whereas at the top are difficult to handle and more often they trigger the stop loss first before moving. Probably, it is due to the forces that governs the prices : GREED and FEAR and we all know that FEAR is the stronger emotion.
1. RSI divergence should be used when formed in overbought or oversold Zone. Others may be used in combination with other studies but NO trade solely based on it.
2. Since we are handling here the situation against the trend and looking for reversal, we should be prepared mentally and be protected with reasonable Stop Loss.
3. Divergence formed at the bottom after a bearish run works better whereas at the top are difficult to handle and more often they trigger the stop loss first before moving. Probably, it is due to the forces that governs the prices : GREED and FEAR and we all know that FEAR is the stronger emotion.
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