Forex Divergence Strategy For Metatrader 5

Divergence as a key term here describes a type of trading that is rooted in deviation or disharmony.

Currency traders across the globe are known to frequently adopt some form of divergence forex trading strategies.

In theory, indicators and prices are supposed to move in the same direction at proportional rates.

Furthermore, when price touches a peak, the indicator is also meant to attain a higher high.

Conversely, if price tests a trough, the indicator is also meant to follow suit.

There are unique cases in the market when price and the accompanying indicators don’t match, this gives a clue that some kind of trend change is likely.

This is simply how divergence works and the Forex Divergence strategy for Metatrader 5 is built on this simple idea.

Trade Setup 

MetaTrader 5 Indicators: Envelopes.ex5 (Default Setting), awesome_oscillator_divergence.ex5 (Default Setting)

Trade Style: Scalping, Day trading, swing trading

Trading Sessions: London | New York | Tokyo

Currency Pairs: Majors, cross pairs, exotics

Platform: Metatrader 5 (MT5)

Download

Download the Forex Divergence Strategy For Metatrader 5

Buy Trade Example: EURUSD, H1 Chart

Fig. 1.0

Trading Strategy Rules For Buy and Sell Trades Explained

Buy Entry

Enter a buy trade if the following trading conditions are met:

  1. If the awesome_oscillator_divergence custom indicator forms higher lows between Point C & D, while price depicts a corresponding lower lows on Point A & B (see Fig. 1.0), a bullish divergence is said to be kicking in, as such a buy alert is imminent.
  2. If the dark green & maroon histograms of the awesome_oscillator_divergence indicator hover above the 0.00 horizontal level, price is said to be driven to the upside, therefore a buy signal will suffice.
  3. If price opens and closes above the red line of the Envelopes Metatrader 5 forex indicator as shown on Fig. 1.0, the overall market sentiment is said to be bullish i.e. a trigger to buy the designated currency pair.

Suggested Stop Loss for Buy Entry: Place stop loss below the most recent support low price.

Suggested Exit Strategy/Take Profit for Buy Trade

Exit the buy trade if the following trading conditions are met:

  1. If the awesome_oscillator_divergence indicator displays a bearish divergence during a bullish trend denoted by a red downward arrow (refer to Fig. 1.0), it is a signal to exit or take profit immediately.
  2. If price closes below the red line of the Envelopes indicator while a bullish trend is running, a bearish reversal is said to be looming, hence an exit or take profit is advised.

Sell Entry

Open a sell trade if the following trading conditions are met:

  1. If the awesome_oscillator_divergence custom indicator forms lower highs between Point C & D, while price depicts a corresponding higher highs on Point A & B as illustrated on Fig. 1.1, a bearish divergence is said to be swinging in, as such a sell alert is in the offing.
  2. If the dark green & maroon histograms of the awesome_oscillator_divergence indicator hover below the 0.00 horizontal level, price is said to be dragged lower, therefore a sell signal will do.
  3. If price opens and closes below the blue line of the Envelopes forex indicator as exemplified on Fig. 1.1, the general market sentiment is said to be bearish i.e. a trigger to sell the selected fx pair.

Suggested Stop Loss for Sell Entry: Place stop loss above the most recent resistance support high price.

Suggested Exit Strategy/Take Profit for Sell Entry

Exit the sell trade if the following trading conditions are met:

  1. If the awesome_oscillator_divergence indicator pops up a bullish divergence during a bearish trend indicated by a blue upward arrow (check Fig. 1.1), it is a signal to exit or take profit at once.
  2. If price closes above the blue line of the Envelopes indicator during a bearish trend, a bullish reversal is said to be on the horizon, hence an exit or take profit is recommended.

Sell Trade Example: EURUSD, H1 Chart

Fig. 1.1

Free Download

Download the Forex Divergence Strategy For Metatrader 5

MT5 Trading Indicators Used For This Strategy

The Envelopes Metatrader 5 indicator is a trend indicator that is built after the moving averages and is also tagged a Moving Average Envelopes.

The awesome_oscillator_divergence forex indicator is a technical indicator derived from the plotting of divergence lines on the Awesome Oscillator indicator.

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