Price Reversal Divergence Forex Trading Strategy

A price reversal often points to market scenarios in which the forex price is showing signs to take a new direction.

The Price Reversal Divergence forex trading strategy was designed to spot early signs of new price directions and then provide traders with powerful buy and sell trading signals in the direction of the new trend.

Chart Setup

MetaTrader4 Indicators: MACD_Divergence_V1.1.ex4 (default setting), 8 EMA.ex4, MALRFast.ex4 (default setting)

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

Recommended Trading Sessions: Any (London, New York, Tokyo)

Currency Pairs: Any pair

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Buy Trade Example

Fig. 1.0

Strategy

Long Entry Rules

Initiate a buy entry if the following indicator or chart pattern gets displayed:

  1. If the MACD_Divergence_V1.1 custom indicator displays a bullish divergence using green divergence lines that are plotted within the indicator window and on price (refer to Fig. 1.0) along with a green upward pointing arrow within the indicator window, price is said to be pressured to the upside i.e. a buy signal.
  2. If the red 28 EMA line crosses the gold MALRFast.ex4 custom indicator line bottom up as shown on Fig. 1.0, the sentiment in the market is said to be bullish, hence a trigger to buy the designated currency pair.

Stop Loss for Buy Entry: Place stop loss 1 pip below the previous 5 candlestick low price.

Exit Strategy/Take Profit for Buy Entry

Exit or take profit if the following rules or conditions takes center stage:

  1. If the magenta line of the MACD_Divergence_V1.1 custom indicator crosses its blue line top downward within its indicator window, an exit or take profit is recommended.
  2. If price closes below the red 28 EMA line, it is an indication of weaning bulls power, hence an exit or take profit is advised.

Sell Entry Rules

Initiate a sell entry if the following holds preference:

  1. If the MACD_Divergence_V1.1 custom indicator displays a bearish divergence via red divergence lines that are plotted within the indicator window and on price (refer to Fig. 1.1), along with a red downward pointing arrow within the indicator window, price is said to be pushed lower i.e. a sell signal.
  2. If the red 28 EMA line crosses the gold MALRFast.ex4 custom indicator line top downward as illustrated on Fig. 1.1, the sentiment in the market is said to be bearish, hence a signal to sell the asset of focus.

Stop Loss for Sell Entry: Place stop loss 1 pip above the previous 5 candlestick high price.

Exit Strategy/Take Profit for Sell Entry

Exit or take profit if the following holds sway:

  1. If the magenta line of the MACD_Divergence_V1.1 custom indicator crosses its blue line bottom up within its indicator window as shown on Fig. 1.1, an exit or take profit should be considered.
  2. If price closes above the red 28 EMA line during a sell signal, it is an indication of halting bears power, hence an exit or take profit will do.

Sell Trade Example

Fig. 1.1

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About The Trading Indicators

The 28 EMA is an exponential moving average that has its period set at 28 and reduces the lag by adding more weight to recent price.

The MALRFast.ex4 custom indicator is a line indicator that is built after the moving average and as such it is a trend indictor.

The MACD_Divergence_V1.1.ex4 custom indicator is an MACD variant that defines reversal zones using its green (bullish divergence) and red (bearish divergence) lines.

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