Before you head out there and start looking for potential divergences, here are nine cool rules for trading divergences.

We will review the rules over multiple days.

Learn ’em, memorize ’em (or keep coming back here), and apply ’em to help you make better trading decisions.

Ignore them and go broke.

1. Make sure your glasses are clean

For a divergence to exist, the price must have either formed one of the following:

  • Higher high than the previous high
  • Lower low than the previous low
  • Double Top
  • Double Bottom

Don’t even bother looking at an indicator unless ONE of these four price scenarios has occurred.

If not, you ain’t trading a divergence, buddy.

You’re just imagining things. Immediately go see your optometrist and get some new glasses.

Divergence Trading Rule #1: YesThere must be extreme highs and lows