There are two types of divergences you can use in your trading. One type can help you spot a potential change in the trend and the other can help you see when a trend is looking to continue.
In this post we go through exactly what divergence trading is and how you can use it in your trading with free MT4 and MT5 indicators.
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What is Divergence Trading?
Divergence trading is when price is moving in a different direction to what an indicator is.
There are a number of different indicators that can be used to find when divergence is showing, but the commonly used indicators when divergence trading are the MACD, RSI and Stochastic.
Divergence trading is most commonly used to find when a trend may be weakening and a reversal could be coming.
You can identify both when divergence is hinting at a bullish and bearish move. These are known as positive and negative divergence.
You can also use divergence to assess the strength or momentum of a current move. This can give you a greater insight into where price could be about to head next.
What is Hidden and Regular Divergence?
As we have just mentioned there are both positive and negative divergence, but there is also regular and hidden divergence.
You can use divergence trading to not only find the momentum of a move and when a reversal could be about to occur, but to also identify when a trend is going to continue.
There are two different types of regular divergence, positive and negative or they are also known as bullish and bearish.
Regular Bullish Divergence
Regular bullish divergence is normally found at the bottom of a downtrend. You will be able to spot this divergence as price is making lower lows, but the oscillator indicator is starting to make higher lows.
Regular Bearish Divergence
This type of divergence shows a potential reversal back lower and it is normally found at the top of an uptrend.
You will be able to spot this divergence when price is making a higher high, but the oscillator indicator is making a lower high.
There are two different types of hidden divergence, bullish and bearish.
You can use hidden divergence to identify trend continuations and the trends momentum.
Hidden Bullish Divergence
This type of divergence will be spotted when price is trending higher.
To identify hidden bullish divergence you are looking for price to make a higher low. You are then looking to see if your oscillator indicator makes a lower low.
Hidden Bearish Divergence
This type of hidden divergence will be spotted when price is trending lower.
To find bearish hidden divergence you are looking for price to make a lower high. You are then looking to see that your oscillator indicator makes a higher high.
Divergence Indicator for MetaTrader 4
This indicator at MQL5 is one of the most in-depth divergence indicators you can use on MT4 and it is also free to use.
You can use this indicator on any market and time frame you wish to and it has many settings you can customize.
You have the choice of 30 different oscillators to find divergence with and when you have the indicator set you get clear layouts on your charts.
Get the MT4 Divergence Indicator Here.
Divergence Indicator for MT5
This indicator is a free MT5 divergence indicator that gives you both buy and sell signals. These signals are displayed as green and red arrows on your charts.
A really nice feature of this indicator is that it has inbuilt alerts that mean you will not miss any potential trades.
The indicator is built using MACD to find potential divergence trades.
You can read more about this MQL5 indicator at the link below.
Get the MT5 Divergence Indicator Here.
Note: Don’t know how to install and use these indicators? Read How to Download, Install and Use MT4 and MT5 Indicators.