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HomeResourceDivergence Cheat Sheet: An Analytical Tool Guide In Trading

Divergence Cheat Sheet: An Analytical Tool Guide In Trading

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Divergences are one of the most important tools for traders in all markets, since thanks to these phenomena it is possible to analyze the following movements in any market. That is why it is necessary that we take into account each of the tricks that we can use to better analyze the divergence.

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Among them we have the classic indicators that we can use to predict a reversal of the trend, or when it will continue, and even for how long. That is why creating a divergence cheat sheet can help you improve your results. To do this, you can consult this guide created by the experts at Margex: https://margex.com/blog/divergence-cheat-sheet/

What analytical tools allow us to analyze divergence?

There are several, in fact, with various levels of complexity. The simplest are the moving average and the MACD, which allow you to measure divergence and convergence by averaging support and resistance points. On the other hand, we have the oscillators, extremely useful tools. These do not move smoothly, but oscillate around a center that represents a neutral point and that measures the levels of euphoria and panic in the market, allowing to know the sentiment, and generating projections based on these parameters, collectively known as “sentiment”.

What analytical tools allow us to analyze divergence Trading

With just these tools you can start creating your divergence cheat sheet. Learn how to use them correctly and understand what their movements mean and how to know when it is a good time to go long on an asset or when to initiate a short trade. You must take into consideration that even with all the indicators in the world you can lose money since the market can turn unfavorable without prior notice due to sudden events of which you cannot have any control.

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When to invest according to the indicators?

Oscillators are a favorite tool for many traders as they can be extremely easy to understand. On this Investorpedia article: https://www.investopedia.com/terms/o/oscillator, they talk more in depth about how to use an oscillator. On the charts you will be able to find two horizontal lines, between which the oscillator will move. In the stochastic oscillator you can clearly visualize the entry opportunities, either for purchases or sales. The bottom line represents buy opportunities, the top line sells, and the winding line between the two is the oscillator. This moves regardless of the trend line, as we have already said.

When the oscillator approaches, touches, or breaks above the lower line, it is usually a buying opportunity when the oscillator moves back higher, as this would indicate that the market could go higher soon. If, on the other hand, the oscillator touches the upper line and then goes down, it indicates that the market, due to panic, could fall and therefore the price ceiling of the oscillator has already been reached. This allows you to have a much clearer overview than just a real-time trend line which may be insufficient for novice eyes and unreliable for more experienced eyes.

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