Dear FX Top Gun,
A quick market reversal and you could be out 100 pips before you know it. It’s likely – though I hope not – that you know exactly what I’m talking about. Well, there’s a way to avoid that gruesome scenario… and it’s surprisingly simple. In fact, I can sum it up in one word: Divergence. Let me give you a quick rundown of what I mean. Once you get this down, you’ll have an easy way to protect your backside against reversals, and grab some easy money from the movement. Here’s how it works… Divergence is the #1 tool I use in determining if prices are going to reverse. Even though it’s simple enough to utilize, the concept can be a bit tricky to understand at first. But believe me, it’s a critical tool in your Forex success. < p>Divergence occurs when you have an indicator showing one direction and price is going the opposite direction. Many traders like to use MACD divergence, but I don’t generally like MACD because it lags price. I use a buy/sell pressure indicator, which shows how strong a move is candle by candle. This works very well because it is immediate and accurate. Plus, it’s very powerful when used with other indicators such as pivots and Fibonacci retracement levels because it shows if the move has enough strength to move price past those levels. Here’s How You Profit Here is a classic example of divergence using the buy/sell pressure indicator… On the 15 minute GBP/USD chart, a new low is hit at 2.0009 and sell pressure is at -45. The next candle hits a new low of 1.9988 but the sell pressure is not able to make a new low as it only gets to -36. So, price has moved 21 pips lower, but sell pressure is 9 points higher. That is a sure sign price is moving back up. Price then moved off that low of 1.9988 to 2.0047 in about an hour, which would have been a gain of 59 pips. Combine Divergence with Other Indicators for Easy Money This is very powerful on its own, but when used with other indicators it is incredible. Let’s take a little deeper look… In this example, the GBP/USD has been in an uptrend so we want to trade with the trend by going long at that low. In addition, an S1 pivot point was at 1.9997, so price only moved 9 pips lower than that pivot before it got caught and headed back up. One more interesting note: This chart shows a perfect trade set up from entry to exit. If we draw the Fibonacci level from the previous low to the high, it’ll show us where this may retrace back to. Notice the .382 fib level is right at 2.0046 where price met it within 1 pip. Here’s What I Would Do… So, if I was looking at this trade set up, I would see the S1 pivot at 1.9997 and I would enter when I saw the sell divergence, considering we are in an uptrend overall. Even if I entered at 1.9997, price would have only gone against me by 9 pips. I would set my profit target at 1.2041 (I always go 5 pips below the fib or pivot level in case it doesn’t reach that far, and to account for the spread). So, I would have made 44 pips of profit with a high probability, low risk trade. Easy money!
Here’s To Your FX Trading Success,  DC Bonta, The world’s #1 FX money manager  ******************************************************************* Editor’s Note: DC Bonta’s revolutionary tracking, charting, and trading system would cost major institutions over $250,000 a month to lease. He offers private traders access to many of the secrets behind this high return system through his Self-Directed Account and his limited Managed Account. *******************************************************************
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