【Expose the FX Lies ⑥】The misconception that you can win with RSI divergence. The reason the masses are being deceived
Pro Trade CoachMax here.
「FX's lies exposed” series, the6th theme is the representative oscillator indicator “RSI” and its application called “divergence.”
Almost everyone who starts learning FX technical analysis will surelycome through1 this “RSI” at least once.
“70 above indicates overbought, so sell,30 or below indicates oversold, so buy.” At first, people are taught this and try it, but in markets with trends,RSI sticks to tops or bottoms and price moves against it, easily wiping out funds.
Then many place their last hope on the RSI’s “divergence.”RSI divergence.
Divergence (contrarian phenomenon) means that the actual chart price is making new highs, while the RSI graph is making lower highs (or vice versa). Because the price and oscillator move inconsistently, it is interpreted as “market momentum weakening and a sign of a trend reversal.”
Now, will you become able to win by using this divergence? To answer bluntly: not much more accurate.
■Frequent “false signals”
Many people mistake the prestigious-sounding term “divergence” for a high-precision alchemy known only to pros, but that’s a big fallacy.
Why you can't win. The reason is extremely simple. The mechanism by which divergence occurs is itself very simple, and it is merely a very common event on charts. Try validating it yourself, as a test.
A chart that has been rising for a long time makes a deep pullback (decline), then rises again and slightly exceeds the recent high, producing a bearish shadow(陰線). With just this movement, divergence can easily occur.1
If signals that arise from such simple calculations consistently caused the market to reverse cleanly, there would be no losers in FX trading.FX would have no losers.
In reality, even when divergence occurs, after some consolidation, the market often resumes the original trend direction (divergence negated), which happens constantly.
Trade that only looks for the superficial shape of the indicator’s jargon or visuals has no edge.
Stop being driven by “false signs” from indicators. If you want to truly judge the wall where the market will rebound and the real momentum by yourself, please check out my materials and programs offered on GoGoJican (GogoJian) as explained here.
Pro Trade CoachMax