Divergence Tool – The reversal and continuation tool

Divergence Tool – The reversal and continuation tool

Trading consists of many strategies and indicators. Strategies are plans that are used to make maximum benefits out of the investment options. Indicators are the factors that help the traders to see the current market trends and predict the future trends. Binary Options Divergence Tool is one such tool that is used for trade value analysis and prediction.

About Divergence Tool

The following are some of the facts related to divergence in trading terms,

  • Divergence reduces the risk involved in trading and makes it more predictable
  • It is a tool or a diagnostic strategy that can be used to find out if there are going to be reversals in the current trading patterns
  • The tool works with two indicators – price and an oscillator. The oscillator can be anything – CCI, RSI, stochastic and so on.
  • Usually the price and the oscillator go hand in hand. The oscillator points a higher position when the price increases. However, there are times in the market when the oscillator points to the opposite side of the price. This is when divergence is said to exist.
  • When there is a divergence, there is a possibility for the value to go in the reverse direction. This means that the highest valued investment may start losing its value. In such situations, the traders analyse the situation and either sell or buy investments. If they conclude that the value will start decreasing, they sell and they buy the asset whose value will start increasing.
  • Divergence can also indicate whether the value of the investment will continue in the same direction

Types of Divergence Tool

There are 2 types of divergences,

  • Regular Divergence – This indicator is said to exist when the price in the trend graph is low but the oscillator is hitting high-low levels. This is used to detect a trend reversal process
  • Hidden Divergence – This indicator is said to exist when the price is high low in the trend graph but the oscillator is hitting lower-low levels. This is used for both reversal trend prediction and trend continual prediction.

Divergence acts as an excellent aid to decide if something irregular is going to happen to the present value trend. The traders thereby use it to decide if they want to continue with their current strategy or want to deviate from it. Thus it is considered to be one of the most effective indicators in binary options trading.

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