I've just noticed that many people are still confused about Divergence in trading, which is a very useful tool if used correctly. So I want to share some knowledge I've gathered from trading over a period of time.

Simply put, Divergence occurs when the price and the indicator do not move in the same direction. The price might be rising while the indicator shows a decline, or vice versa. It’s a signal that the current trend might change. I see that divergence in stocks or crypto is similar; both use the same principle.

There are two main types that you need to understand clearly: Regular Divergence and Hidden Divergence. Regular Divergence is a signal that a trend might reverse. It happens when the price makes a new low but the indicator does not follow downward or starts to rise, or when the price makes a new high but the indicator does not follow upward or begins to decline. This is a point where the price has the potential to change direction.

On the other hand, Hidden Divergence indicates that the trend is likely to continue. It occurs when the price swings weakly but the indicator still shows strength. At this point, you should hold your position rather than close it.

The best tools to observe Divergence are MACD, RSI, and Williams Percent Range. Personally, I prefer RSI because it’s clearer. When RSI enters the Overbought zone (above 70) or Oversold zone (below 30) and does not follow the price, that’s a warning sign.

Regarding trading Regular Divergence, the first step is to look for reversal patterns, such as Double Tops or Double Bottoms at the end of a trend. Then check if the indicator does not confirm that movement. When the price starts showing real reversal signals, like a long green candle, that’s the entry point. Place your stop loss at the lowest point of the previous candle.

For Hidden Divergence, look for weak swings in the price, making higher highs or higher lows, but the indicator still shows strength. In this case, you should not exit the position because the trend is likely to continue in the same direction.

An important point to remember is that Divergence is not 100% accurate. It can occur many times before the price actually changes direction. Therefore, you should wait for a good entry signal. Don’t enter immediately when you see Divergence, as the price might still move in the same trend.

Another key point is that Divergence works best when combined with other tools. Don’t rely solely on Divergence. Look at price movements, support and resistance levels, and trend lines as well. The more confirming signals you have, the higher your chances of success.

In summary, Divergence is a useful tool, but it must be used wisely and with risk management. Whether trading stocks, crypto, or forex, the same principles apply. Once you understand the difference between Regular and Hidden Divergence and know when to enter, this tool alone can help generate good profits.