Trading divergences on forex takes practice. In this video, Gail shows two Stochastics. The top Stochastics is one that identifies hidden divergence and the bottom Stochastics shows regular divergence. Then the ADX is added to identify when a trade setup is likely to come in because anytime the ADX makes a magenta peak then price is expected to retrace back to the ATR.
Trading Divergences on Forex
In this video, Gail shows you both the Stochastics for regular and hidden divergences. These indicators are for illustration only because when trading you need to be able to see the divergence as it is forming. By the time it plots, typically you are late to the game. In this case, the first clue a trade is coming in is the ADX magenta peak, which will send price back to the ATR. Then with price at the ATR, you need to look for the divergence (either hidden or regular) indicating that price will move in your direction. The Stochastics marking the divergence will come in one to two bars later (which could be used as confirmation). The benefit of early entry is that you can use the OTM binaries to limit risk. For example, Gail typically only risks less than $30 for a five minute binary option with a profit potential of $70 when trading divergences. This risk to reward ratio is designed to compensate for the false divergences that will occur.