Profits from identifying divergences between price and momentum indicators
| Strategy Type | Price-Indicator Divergence Detection / Reversal Trading |
| Market Outlook | Profits from identifying divergences between price and momentum indicators |
| Risk Profile | Moderate - divergences signal potential reversals but require confirmation |
| Reward Profile | Strong returns from early reversal detection (20-50%+) |
| Time Horizon | Short to medium-term (days to weeks) |
| Iv Environment | N/A - pure price and indicator-based strategy |
| Breakeven | Depends on divergence accuracy and confirmation timing |
| Primary Instruments | US stocks via CFDs, S&P 500 E-mini, NASDAQ 100 E-mini, Forex, Commodities |
| Mas Compliance | MAS regulated brokers required for CFD/futures trading |
| Trading Hours | Multiple sessions - US 9:30 PM - 4 AM SGT, Asia 8 AM - 4 PM SGT, Europe 3 PM - 11 PM SGT |
| Contract Size | E-mini S&P: USD50 per point; Forex: varies by pair |
| Settlement | Cash settled for CFDs and futures |
| Tax Treatment | No capital gains tax for individuals in Singapore |
| Margin Requirements | Standard CFD/futures margin |
| Cdp Account | Not required for CFD/futures |
| Singapore Relevance | Divergence analysis works universally across all markets and sessions - Singapore traders can apply to detect reversals in any market |
Divergence occurs when price moves one direction but an indicator moves the opposite direction. For example, price makes a new low but RSI makes a higher low. This signals potential reversal.
Regular divergence signals reversal (price lower low, RSI higher low = bullish). Hidden divergence signals continuation (price higher low, RSI lower low in uptrend = bullish continuation).
RSI (14-period) is most popular and reliable. MACD is also excellent. Using multiple indicators together (RSI + MACD) creates stronger signals.
No. Always wait for confirmation - a reversal candle, trendline break, or swing break. Divergence alone can persist before reversing.
Best divergences form at key support (bullish) or resistance (bearish) levels. Divergence without S/R context has lower win rate.
When multiple indicators (RSI, MACD, Stochastic) all show the same divergence. This confluence creates much higher probability signals, typically 10-15% better win rate.
Divergence building over 3+ price swings. Each new price extreme fails to be confirmed by indicator. Extended divergences are more reliable than single-swing divergences.
Check HTF for major divergences (sets bias). Trade divergences on trading TF. Use LTF for entry timing. Best when divergence aligns across timeframes.
When volume indicators (OBV, MFI) disagree with price. Price rising but OBV falling = distribution. Price falling but OBV rising = accumulation. Shows institutional positioning.
Stop goes beyond the divergence swing extreme plus a small buffer. Bullish: below swing low. Bearish: above swing high. Use ATR for buffer calculation.
Detect swing points using lookback. Calculate indicator values at swing indices. Compare price direction to indicator direction. If opposite at swings, divergence detected.
Optimize on training period (2 years), test on subsequent out-of-sample (6 months), roll forward and repeat. Validates parameters work on unseen data and prevents overfitting.
Statistical analysis shows divergences at S/R levels have 10-15% higher win rates. A 60% single-indicator divergence becomes 70-75% at major support/resistance.
When volume indicators show institutional activity opposite to price. OBV rising while price falling = accumulation. Block trades at divergence points confirm institutional interest.
Stream price data, calculate indicators incrementally, detect swings with lookback delay, run divergence detection at bar close, check context (S/R), score and alert on qualified signals.
Full guided lessons, quizzes, and a complete strategy library for the Singapore market. One-time purchase. No subscription, ever.
Get Singapore access →