Stochastic Divergence Forex Trading Strategy

The Stochastic Divergence forex trading strategy is based on classical bullish and bearish divergence.

Traders can deploy this strategy when searching for trend reversal or zones where price is likely to reverse.

Chart Setup

MetaTrader4 Indicators: Stochastic_DivergenceMTF.ex4 (default setting), Super Trend.ex4 (default setting)

Preferred Time Frame(s): 1-Minute, 5-Minute, 15-Minute, 30-Minute, 1-Hour, 4-Hour, Day

Recommended Trading Sessions: Any

Currency Pairs: Any pair

Download

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Buy Trade Example

Fig. 1.0

Strategy

Long Entry Rules

Enter a buy in the market if the following takes place within the activity chart:

  1. If the line of the Super Trend custom mt4 indicator is painted deep sky blue, price is said to be pushed somewhat higher, hence a buy signal.
  2. If the aqua colored solid line of the Stochastic_DivergenceMTF.ex4 custom mt4 indicator plots lower lows (LL) on price bars, while also plotting higher lows within its indicator window (refer to Fig. 1.0), price is said to be in a classical bullish divergence i.e. a signal to buy the pair of interest.

Stop Loss for Buy Entry: Place stop loss below support.

Exit Strategy/Take Profit for Buy Entry

Exit or take profit if the following indicator or chart pattern gets displayed:

  1. If the line of the Super Trend custom mt4 indicator gets painted yellow during a bullish trend, it is a signal of weaning bullish sentiment in the market i.e. a trigger to exit or take profit at once.
  2. If the Stochastic_DivergenceMTF.ex4 custom mt4 indicator forms a classic bearish divergence setup on the activity chart during a buy signal, price is believed to be making a U-turn i.e. an exit or take profit is advised.

Sell Entry Rules

Enter a sell order if the following holds true:

  1. If the line of the Super Trend custom mt4 indicator is painted yellow, price is said to be pressured to the downside i.e. a signal to sell.
  2. If the maroon solid line of the Stochastic_DivergenceMTF.ex4 custom mt4 indicator plots higher high (HH) on price bars, while also plotting lower high (LH) within its indicator window (refer to Fig. 1.1), price is said to be in a classical bearish divergence i.e. a signal to sell the asset of interest.

Stop Loss for Sell Entry: Place stop loss above resistance.

Exit Strategy/Take Profit for Sell Entry

Exit or take profit if the following chart or indicator pattern gets displayed:

  1. If the line of the Super Trend custom mt4 indicator gets painted deep sky blue during a bearish trend, it is a signal of halting bearish momentum in the market i.e. a trigger to exit or take profit at once.
  2. If the Stochastic_DivergenceMTF.ex4 custom mt4 indicator forms a classic bullish divergence setup on the activity chart during a sell trigger, price is believed to be making a U-turn i.e. an exit or take profit is recommended.

Sell Trade Example

Fig. 1.1

Free Download

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About The Trading Indicators

The Super Trend indicator is a trend following and non-repainting custom indicator that is based on the CCI.

The Stochastic_DivergenceMTF.ex4 is a Stochastic Oscillator that reveals paired line within the indicator window and the price chart in the main window, thereby defining divergence.

The colors of the bullish (aqua) and bearish (maroon) divergence is well-defined.

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