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Many people publish that they teach you how to make money without investing anything, and this is something tempting to many people, especially if they come without strong knowledge of the market, but are there really ways to make real profits without paying money in this matter? We will talk about the things that are promoted and that are not always true.
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When I first started trading cryptocurrencies, I was overwhelmed by the complexities of the market. The rapid price movements, the countless indicators, and the pressure to make quick decisions made it a daunting task. But everything changed when I discovered the concept of "divergence" in trading. Understanding divergence helped me grow my initial investment of just $80 into over $3,000, and in this article, I’ll explain how you can use this powerful tool in your trading strategy.
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What is Divergence?
Divergence occurs when the price of an asset moves in one direction, while a technical indicator, such as the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD), moves in the opposite direction. This can signal that the current trend is weakening and that a reversal might be imminent.
In simpler terms, if the price is going up but the indicator is going down (or vice versa), it’s a sign that something might not be right. It’s like the market is saying one thing, but the underlying data is suggesting another.
Types of Divergence
There are two main types of divergence you should be aware of: Regular Divergence and Hidden Divergence. Let’s break them down.
Regular Divergence:Bullish Divergence: This happens when the price makes lower lows, but the indicator makes higher lows. It indicates that the downtrend might be losing momentum, and a bullish reversal could occur soon. This is a good time to consider buying.Bearish Divergence: This occurs when the price makes higher highs, but the indicator makes lower highs. It suggests that the uptrend might be weakening, and a bearish reversal could be on the horizon. This is a signal to potentially sell.Hidden Divergence:Bullish Hidden Divergence: This happens when the price makes higher lows, but the indicator makes lower lows. It suggests that the bullish trend is likely to continue, even if there’s a temporary pullback. It’s a good signal to look for buying opportunities.Bearish Hidden Divergence: This occurs when the price makes lower highs, but the indicator makes higher highs. It indicates that the bearish trend is likely to continue, despite any temporary upward movement. This is a signal to look for selling opportunities.
How I Used Divergence to Make Profitable Trades
When I first started applying divergence to my trades, I focused on Regular Divergence because it’s easier to spot and more straightforward to use. Here’s how I did it:
Identifying Divergence:I began by analyzing the RSI indicator alongside the price chart of the cryptocurrency I was trading. The RSI is a momentum oscillator that measures the speed and change of price movements, which makes it perfect for spotting divergence.Whenever I noticed a potential divergence, I would double-check it using another indicator like MACD to confirm the signal.Entry Points:If I spotted a bullish divergence, I would wait for a small pullback in the price before entering a buy position. This helped me avoid false signals and enter at a better price point.In the case of bearish divergence, I would wait for a slight rally before shorting the asset. This gave me a safer entry point with more room for profit.Risk Management:I always set a stop loss slightly below (for bullish trades) or above (for bearish trades) the recent low or high. This helped protect my capital in case the market didn’t move as expected.Additionally, I never risked more than 5% of my trading capital on a single trade. This disciplined approach kept me in the game even when I had a few losses.
The Results
Using this strategy, I was able to grow my $80 investment to $3,000 over several months. It wasn’t easy, and there were times when I doubted the effectiveness of divergence. But by sticking to my strategy, managing my risk, and being patient, I was able to achieve consistent profits.
Conclusion
Divergence is a powerful tool that can help you identify potential reversals and continue trends in the market. By understanding and applying both Regular and Hidden Divergence, you can significantly improve your trading strategy.
Remember, the key to success in trading is not just knowledge but also discipline and patience. With practice, you too can use divergence to spot profitable trading opportunities and grow your investment just as I did. Happy trading!
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