Time to Put Your Divergence Skills to the Test
Ready to use your newly acquired divergence powers like a Jedi? Time to put those mind tricks to work and squeeze some pips out of the market!
In this lesson, we’ll walk you through real examples where price and oscillator movement didn’t line up — and how that created great trading opportunities.
📊 Trading a Regular Divergence
Let’s start with regular divergence.
Here’s a daily chart of USD/CHF:
🟣 Regular Bullish Divergence – USD/CHF Daily Chart
You can clearly see that the pair has been stuck in a downtrend — just follow that descending trendline.
But wait… what’s this?
Price is making lower lows, while the Stochastic oscillator is printing higher lows.
Hmm… that’s a red flag for the bears. Something doesn’t add up.
Could it be… a reversal?
🟢 A Profitable Setup
If you suspected the downtrend was coming to an end and went long — congrats!
You’d have been basking in the Caribbean sun, sipping margaritas, and counting your pips — because this setup turned out to be golden.
The divergence between the Stochastic and price action was a textbook buy signal.
Price broke above the falling trendline and kicked off a new uptrend.
If you caught the entry near the bottom, you could’ve bagged over 1,000 pips in the weeks that followed.
That’s the power of getting in early when momentum is shifting!
🕵️♂️ Spotting Extra Clues
Oh — and did you catch the tweezer bottoms that formed at the second low?
That’s another reversal clue confirming the divergence.
Stacking signals like this gives you even more confidence in your trade setups. Always be on the lookout for patterns or candlestick hints that align with what your indicators are saying.
📉 Trading a Hidden Divergence
Now let’s check out an example of hidden divergence, using the same pair: USD/CHF on the daily chart.
🔻 Hidden Bearish Divergence – USD/CHF Daily Chart
Price is trending lower overall, and now it forms a lower high.
But the Stochastic? It’s showing a higher high.
That’s a classic case of hidden bearish divergence, which signals a potential trend continuation.
😬 To Trade or Not to Trade?
So what do you do?
If you weren’t sure and chose to sit this one out — no judgment — but you might’ve ended up pulling your hair out like Professor X.
Why?
Because price respected the trendline and plunged nearly 2,000 pips afterward!
If you’d spotted the divergence and understood what it meant, you could’ve confidently rejoined the downtrend and potentially ridden it all the way down.
Forget just margaritas — we’re talking private-yacht-in-the-Caribbean kind of trade.
💡 Final Thoughts
These real-world examples show how divergences can help you catch reversals or ride trend continuations — depending on the type.
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Regular Divergence = Possible trend reversal
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Hidden Divergence = Possible trend continuation
In the next lesson, we’ll look deeper into more real chart examples — so you can practice spotting these setups and turn them into smart trading decisions.
Let’s keep rolling! 🚀