|Education - STEP 12|
Concept of the Regular Divergence
If the Divergence can be observed in price but cannot be seen in the Oscillator then this type of Divergence is the Regular Divergence. Regular Divergence is also termed as Classic Divergence. In case of Regular Divergence, when the Divergence can be observed in price but cannot be seen in the Oscillator then the price movement is likely to show reversal. So the Classic Divergence is a good indicator to confirm the reversal entry. Change of price trend shown by the Regular Divergence is expected to occur in the future. The Regular Divergence is also easier to spot as compared to the Hidden Divergence. Weakness in price trend results in a reversal. Regular Divergence is a tool that answers whether the trend is losing or gaining momentum.
Conditions of the Regular Divergence
The two conditions forms in the Regular Divergence are explained below.
Lower highs shown in the Oscillator and higher highs shown in the price indicate the reversal of trend in the direction from upwards to downwards.
Higher lows shown in the Oscillator and lower lows shown in the price indicate the reversal of trend in the direction from downwards to upwards.
Time frame is in uptrend if the price is making higher lows and higher highs and the time frame is in downtrend if the price is making lower lows and lower highs. Regular Divergence is used to test the Double Top or Bottom and Triple Top or Bottom. It is very common to observe the three or four lower highs shown in the indicator with the three or four higher highs shown in uptrend or three or four higher lows shown in the indicator with the three or four lower lows shown in the downtrend. These patterns are called the three point Regular Divergence or the four point Regular Divergences. This indicator signals the weakening of the trend and the possibility of the potential trend change so the Forex traders and investors should trade accordingly. Some Forex traders may tighten their stops while others may exit from their opened positions. The two price charts below shows the examples of the Regular Divergence.
As shown above the red line on the price chart and another red line on the Stochastic Indicator compares the highs and shows the Regular Divergence in an uptrend.
As shown above the red line on the price chart and another red line on the Stochastic Indicator compares the lows and shows the Regular Divergence in a downtrend.
A comparison of Regular and Hidden Divergence is shown in the figure below.
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