One of the vital things to keep in mind while dealing with divergences is that, divergence is used as an indicator and not as a signal to enter a trade. You must not trade only with divergences due to several false signals.
Divergences can be beneficial in several ways,
- It helps to acknowledge trend lines or candlestick formations in order to validate if reversal or continuation is in order or not
- It helps to use momentum tricks to be alert of an actual crossover or waiting for oscillator to leave the oversold region
- It helps to draw trend lines on the oscillator
Divergences can be detrimental as well. It does not appear too often and when does it seeks for attention.
When you use regular divergence, it helps you to compile huge profit as you can enter just when the trend changes. When you use hidden divergence, it helps you to be on the proper side of a trend and therefore, you can trade for longer period of time and thus you can make good profit. You need to cautiously look for divergences and select the correct divergence to trade.