I wanted to provide you all with a live example of market structure as well as the importance and understanding of Divergence. Divergence, like your typical RSI/CCI/Stochastic 'overbought' or 'oversold' indicator is a method of identifying key places for the market to reverse or begin a correction.
On GBPJPY 15 minute chart shown here, I first want to bring attention to the market structure that we are trading in...a . Very predictable levels to look for buys and sells until one or the other is broken. I sold GBPJPY yesterday at 169.00...it turned out to be a great trade. Less than a day later we find ourselves at the bottom of the channel with divergence. I'm not going to explain or show every indicator with divergence, if you use it, you know what I'm talking about.
Divergence is not a diamond in the rough, it's just another tool. In hindsight divergence will always seem 100% obvious and works all the time, even if only for a little bit. This is because the indicators that are showing you divergence are doing nothing more than showing you what you should already be looking at on the charts.
Ideally, if you're looking for this channel support to hold - this case of divergence would assist in identifying the market reversal or correction. There was strength coming down with this move - even with divergence it's important for you to WAIT until that strength has been broken. If you do not wait you will find yourself buying into a trade just before a brand new impulse lower. You might get emotional and wonder....it has to turn around...the channel support!
Look for buys/correction higher off of this support if we can break that strength. If the support for the channel fails to hold, I urge you to use logic and don't pray for price to come back to your entry just because of the channel or 'divergence' Breaking the support of a or structure often leads to explosive breakouts.
I'll post a follow up to this publication during Wednesday's US session and we can look at my identified structure versus what the market was actually doing. We'll find either a really good example of divergence, or a really good example of why divergence cannot be relied on by itself and requires conviction from the market to really be traded efficiently.
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