Divergence can be identified from the oscillating indicators, the most popular of which are the MACD, Stochastic and RSI. Any of these running on your day trading chart with costs in either candlesticks or bar chart form can be used.

Bearish Divergence

Bearish divergency exists when the price chart is seemingly bullish but the oscillator is showing a bearish trend. If you have got a signal to open a trade to go long, the divergence is signalling you not to do it. If you have a signal to open a trade to go short, on the other hand, the divergence is confirming that and you can go ahead. Bullish Divergence

Bullish divergence is the other way round. It exists when the price movement on the day trading chart is seemingly downward, but the oscillator is showing a upward trend. Here a line across the lowest lows of the price chart will show bearish (downward) movement, while a line across lowest lows of the oscillator will be moving upward.

The signal is the opposite to the previous one. The deflection is signalling that the bearish trend is coming to an end so that you can close short trades and open long trades if that fits with the other signals of your system.

Naturally no system is one hundred pc accurate and that applies to using deviation in trading just the same as anything more. Financial trading is dangerous and you can lose. However, looking for divergency in addition to your usual system could be a terribly potent way to add to the successfulness of your system. Boost your profits by spotting patterns in deflection from the signals on your day trading chart.