Convergence and Divergence

The concept of convergence and divergence is very sensible as we look
for subtle indications of changes in the trend. Another way of ap-
proaching this issue is to ask, “Is this trend running out of steam?”
When the highs are getting higher, or lows are getting lower, we are en-
couraged to look for reasons to enter the market in that direction. But,
when the highs are not getting higher, then sometimes it is an indication
that a reversal is about to begin.
But, the Forex is so very dynamic that these convergence/divergence
rules become very complicated. For example, I was studying a website on
this topic where the examples that were used had three sets of oscillators
at the bottom of the chart. There were two separate Slow Stochastics and
oneMACD oscillator. Not only that, but there was a total of 16 lines in those
oscillators. How amI ever going to understand and learn how to trade using
16 lines?
Even if I learn how to use 16 lines, I will then need to learn the differ-
ences between “regular divergence” and “hidden divergence,” and the rules
for trading just exceeded my ability.
My approach to divergence is very simple: If the oscillator is moving
in the opposite direction of the chart candles or bars, then I have
divergence. Period. In Figure 3.1, I have drawn three arrows to indicate
the divergence where the 5-period and 20-period moving average lines are
following themarket and aremoving in one direction while theMACD lines
at the bottom of the chart are going in the opposite direction. If the trader
waits for indicators to be convergent, some bad decisions can be avoided
as the trend is followed in a precise manner.