asdfghjhhg
Education

BULLISH DIVERGENCE / BEARISH CONVERGENCE

FX:EURUSD   Euro / U.S. Dollar
Oscillators are used to

-> Determine the strength of the prevailing trend.
-> Determine when to open a position on a flat market.
-> To define if the trend is weak, use bullish divergence / bearish convergence.

A Bullish divergence occurs when a new price low is not confirmed by a new oscillator low. This implies that the downtrend is weak.
Bearish convergence occurs when a new high is not confirmed by a new oscillator high. This signals that the uptrend is weak.

Both bullish divergence and bearish convergence, however, show that it is better to refrain from opening a position against the weakening trend. The Trend is valid until reversal signals appear. It is important to be more careful with oscillators when the trend is strong; often false oscillator signals indicate the strength of the trend. If it is an uptrend then most of the time oscillators are in the overbought area, if it is a downtrend, they are in the oversold area. Overbought and oversold levels have to be defined for each indicator individually.

In the figures above the Relative Strength Index ( RSI ) is used as an oscillator. If the indicator is above 80 then it is in the overbought area, if it is below 20 then it is in the oversold area. When the trend is strong, the oscillator can be in the overbought (oversold) area for a long time and then it can exit the area but the trend will still be valid. When the oscillator penetrates the overbought (oversold) area for the second time and then quickly goes back forming a bullish divergence / bearish convergence, there is a high chance that the trend will weaken. In case, where the market is flat, it may be time to open a position once the oscillator leaves the overbought (oversold) area. Confirmation of the signal appears when the price is close to the upper (lower) border of the trading range.

Comments

Home Stock Screener Forex Screener Crypto Screener Economic Calendar How It Works Chart Features Pricing Refer a friend House Rules Help Center Website & Broker Solutions Widgets Charting Solutions Lightweight Charting Library Blog & News Twitter
Profile Profile Settings Account and Billing Refer a friend My Support Tickets Help Center Ideas Published Followers Following Private Messages Chat Sign Out