How Does FX Divergence Affect You?
What is Forex Divergence? Forex is a market in which one currency is purchased and sold simultaneously. If you have ever traded in the stock markets, then you may have experienced what is called a “trend reversal”. A trend reversal occurs when the price of one currency is sharply going up and down before settling back to a new trend. In Forex, this is called a “Divergence”.
When the market is moving in an up direction, this means that the value of currency being bought is rising. And when the market is moving down, it means that the value of currency being sold is falling. If you purchase currency at a lower price and sell it at a higher price, you are experiencing what is called a divergence. What is happening in the Forex market is that currencies are converging. The current up movement is causing the prices to rise while the down movement is causing the prices to fall.
What happens to the currency being bought if it is moving up in the market? The seller will make some profits. The reason why they are making profits is that they were selling at a time when the price was falling. As soon as the value of their currency rises, they will sell even though there may not be any buyers.
To answer the question of what is more divergence, you must know about market psychology. When the market is moving in an up direction, people tend to buy. They think the prices will go up further. But when the market is moving down, people tend to sell and this results in them losing money.
How can you tell if the current trend is on the up side or down the side? You need to be able to identify the price divergence. This is the difference between the price that is being paid for a security and the price that is being asked by the market maker. As soon as this divergence appears, you should start to sell because you know the market makers have decided to lower the price to break even.
If the market continues on its present path, this price difference will continue to increase until the market makers decide to reverse the direction. Then, they will increase the price again. As a result, this price difference is referred to as the divergence. However, this price difference will only last as long as the market continues on its present path. In other words, it may only last a few minutes before the market prices start decreasing.