Divergence - Understanding
Small little introduction to divergences and what it means. We want to introduce you to this early, because it will get complex later when we build the system. Understanding divergences will help you know when to be more alert, and when to stay back just a little.
————-- 001 - Understanding
Before we start building a system and getting into the technicals we still need a last little bit of theory.
Divergences in trading, might sound familiar when it comes to indicators. That's the most common usage in the world of trading.
BUT within EXODUS we are using divergence within our system, between our pairs and indices.
So as quoted, what is a divergence?
"Divergence is when the price of an asset is moving in the opposite direction of a technical [indicator] such as an oscillator, or is moving contrary to other data. Divergence warns that the current price [trend] may be weakening, and in some cases may lead to the price changing direction."
So how will we be using divergence?
It's exactly the same concept, but then between your index, in our case DXY and our primary pairs such as GBPUSD and EURUSD
See it as a steam engine train, and when there is a divergence it's because our wagons have decoupled.
DXY is the engine, and EU and GU are the wagons.... if they are not correlated = divergence.
Lets showcase this in an example:
————-- 002 - Example
https://www.tradingview.com/x/Vv5jezcS/
Quick overview of the missed trade. Now lets zoom in a bit.
This was on EURUSD. According to textbook technicals this trade would have been missed. But there is a way to figure out why... Even though you don't understand the technicals and entry model just yet, you can begin to anticipate this.
All our technical tools were so in-line on. Could have been such a nice entry.... but we had the one thing in our way.
DIVERGENCE.... it doesn't happen often, but when it does happen its good to note why.
ou see, at EXACTLY the same time on our DXY chart on ETF, it was ALREADY reacting from a strong array, price was already in the shift zone, displacement and OTE even, as seen below.
So what happened really? Price reached a strong level and already created a rejection on DXY. Many times when this occurs, price on our primary FX pairs such as GU and EU wont go to the main area
I like to mark this divergence with ---¤--- to keep it simple that I know that suddenly, instead of moving inverse from eachother, DXY and my primary pairs are moving in conjunction. Which isn't supposed to happen.
————-- 003 - Avoiding it
1. Always monitor DXY when executing :
When you lower down to your ETF setting make sure that you have a clear indication of what area you are using to enter on with EU and what the nearest DXY area is for that reversal as well. Because sometimes DXY will take the POI first and already reject it leaving that divergence behind on EU
2. Do not marry the idea of your trade and bias :
Become flexible and ready to adapt. Dont become fond of your specific pattern combination, if price is in a POI to reverse, its there. If you see a divergence become confident enough to market execute to not miss your entry on your primary pairs.
3. Master your OTE
Learn to draw the fibs better when catching an OTE. More on that soon don't worry, but focus on candle bodies. Many times you will realize that your live entry will occur during OTE when there is a divergence
————-- 001 - Understanding
Before we start building a system and getting into the technicals we still need a last little bit of theory.
Divergences in trading, might sound familiar when it comes to indicators. That's the most common usage in the world of trading.
BUT within EXODUS we are using divergence within our system, between our pairs and indices.
So as quoted, what is a divergence?
"Divergence is when the price of an asset is moving in the opposite direction of a technical [indicator] such as an oscillator, or is moving contrary to other data. Divergence warns that the current price [trend] may be weakening, and in some cases may lead to the price changing direction."
So how will we be using divergence?
It's exactly the same concept, but then between your index, in our case DXY and our primary pairs such as GBPUSD and EURUSD
See it as a steam engine train, and when there is a divergence it's because our wagons have decoupled.
DXY is the engine, and EU and GU are the wagons.... if they are not correlated = divergence.
Lets showcase this in an example:
————-- 002 - Example
https://www.tradingview.com/x/Vv5jezcS/
Quick overview of the missed trade. Now lets zoom in a bit.
This was on EURUSD. According to textbook technicals this trade would have been missed. But there is a way to figure out why... Even though you don't understand the technicals and entry model just yet, you can begin to anticipate this.
All our technical tools were so in-line on. Could have been such a nice entry.... but we had the one thing in our way.
DIVERGENCE.... it doesn't happen often, but when it does happen its good to note why.
ou see, at EXACTLY the same time on our DXY chart on ETF, it was ALREADY reacting from a strong array, price was already in the shift zone, displacement and OTE even, as seen below.
So what happened really? Price reached a strong level and already created a rejection on DXY. Many times when this occurs, price on our primary FX pairs such as GU and EU wont go to the main area
I like to mark this divergence with ---¤--- to keep it simple that I know that suddenly, instead of moving inverse from eachother, DXY and my primary pairs are moving in conjunction. Which isn't supposed to happen.
————-- 003 - Avoiding it
1. Always monitor DXY when executing :
When you lower down to your ETF setting make sure that you have a clear indication of what area you are using to enter on with EU and what the nearest DXY area is for that reversal as well. Because sometimes DXY will take the POI first and already reject it leaving that divergence behind on EU
2. Do not marry the idea of your trade and bias :
Become flexible and ready to adapt. Dont become fond of your specific pattern combination, if price is in a POI to reverse, its there. If you see a divergence become confident enough to market execute to not miss your entry on your primary pairs.
3. Master your OTE
Learn to draw the fibs better when catching an OTE. More on that soon don't worry, but focus on candle bodies. Many times you will realize that your live entry will occur during OTE when there is a divergence
————-- 001 - Understanding
Before we start building a system and getting into the technicals we still need a last little bit of theory.
Divergences in trading, might sound familiar when it comes to indicators. That's the most common usage in the world of trading.
BUT within EXODUS we are using divergence within our system, between our pairs and indices.
So as quoted, what is a divergence?
"Divergence is when the price of an asset is moving in the opposite direction of a technical [indicator] such as an oscillator, or is moving contrary to other data. Divergence warns that the current price [trend] may be weakening, and in some cases may lead to the price changing direction."
So how will we be using divergence?
It's exactly the same concept, but then between your index, in our case DXY and our primary pairs such as GBPUSD and EURUSD
See it as a steam engine train, and when there is a divergence it's because our wagons have decoupled.
DXY is the engine, and EU and GU are the wagons.... if they are not correlated = divergence.
Lets showcase this in an example:
————-- 002 - Example
https://www.tradingview.com/x/Vv5jezcS/
Quick overview of the missed trade. Now lets zoom in a bit.
This was on EURUSD. According to textbook technicals this trade would have been missed. But there is a way to figure out why... Even though you don't understand the technicals and entry model just yet, you can begin to anticipate this.
All our technical tools were so in-line on. Could have been such a nice entry.... but we had the one thing in our way.
DIVERGENCE.... it doesn't happen often, but when it does happen its good to note why.
ou see, at EXACTLY the same time on our DXY chart on ETF, it was ALREADY reacting from a strong array, price was already in the shift zone, displacement and OTE even, as seen below.
So what happened really? Price reached a strong level and already created a rejection on DXY. Many times when this occurs, price on our primary FX pairs such as GU and EU wont go to the main area
I like to mark this divergence with ---¤--- to keep it simple that I know that suddenly, instead of moving inverse from eachother, DXY and my primary pairs are moving in conjunction. Which isn't supposed to happen.
————-- 003 - Avoiding it
1. Always monitor DXY when executing :
When you lower down to your ETF setting make sure that you have a clear indication of what area you are using to enter on with EU and what the nearest DXY area is for that reversal as well. Because sometimes DXY will take the POI first and already reject it leaving that divergence behind on EU
2. Do not marry the idea of your trade and bias :
Become flexible and ready to adapt. Dont become fond of your specific pattern combination, if price is in a POI to reverse, its there. If you see a divergence become confident enough to market execute to not miss your entry on your primary pairs.
3. Master your OTE
Learn to draw the fibs better when catching an OTE. More on that soon don't worry, but focus on candle bodies. Many times you will realize that your live entry will occur during OTE when there is a divergence
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