I just noticed that many people still don't understand divergence really well, even though it's a very useful tool for reading the market. Let me share my understanding.

Divergence, simply put, is a conflicting signal between the price and the indicator, such as the price just making a new low, but RSI or MACD not reaching the same low. This is an interesting signal because it indicates that the trend may not be as strong as it appears.

There are two main types I regularly use. The first is Regular Divergence, which appears when the price moves strongly but the indicator does not confirm. This situation often means the trend may reverse. Bullish Divergence occurs at the end of a downtrend when the price makes a low but the indicator does not go as low, suggesting the price may rebound quickly. Bearish Divergence is the opposite situation.

The second type is Hidden Divergence, which I like to use when trading with the trend. Here, the price swings weakly, but the indicator still shows strength. For example, the price makes a higher low, but RSI makes a lower low. This signals that the uptrend is not over, and the price will likely continue moving in the same direction.

When trading divergence, I usually look at MACD, RSI, or Williams %R because they effectively indicate momentum. Importantly, you need to know which signals are Regular Divergence (for reversal trades) and which are Hidden Divergence (for trend continuation). Confusing these can easily lead to losses.

Trading Regular Divergence is straightforward: look for patterns where the price is about to reverse, like Double Top or Double Bottom, while the indicator does not confirm the move. When this signal is clear, I wait for the candlestick to show signs of reversal, then open a position in the opposite direction.

For Hidden Divergence, I use it when the price starts to swing weakly, but the indicator still shows strength. Here, I hold my position because the trend is not over yet. When the price breaks out of the range, I trade in the same direction as the trend.

A caution is that divergence may not be 100% accurate. Sometimes it can occur multiple times before the price moves as expected. Therefore, setting stop-loss points and managing risk is very important. Do not rely solely on this signal for trading; combine it with other tools.

In summary, divergence is a good tool, but you need to understand what each type of divergence means and apply it appropriately to the situation. If you do, this tool alone can help improve your trading.