There are many ways to trade and profit from the forex market. You can trade crossover strategies, trend following strategies, medium reversals, price movements and more. It is up to the trader what they think works best for them. One of the most overlooked trading methods is deviations trading. However, this is one of the most logical and effective ways to trade the market.
Deviations literally mean separation or separation. In trading, however, deviations refer to the separation of the direction of an oscillating indicator and price movement. Deviations occur when the peaks and troughs, swing highs and swing lows differ from oscillating indicators and price movements.
For example, let's say price action is in an uptrend, meaning it is making higher highs and higher lows. However, a corresponding oscillating indicator that should reflect and shadow price movement shows a different story. Instead, a lower high was printed. This is a divergence, a bearish divergence. This points to a likely bearish reversal that could happen soon.
Divergences work because they indicate a slowdown in a trend or an increase in retracement. It represents the tension between price movements and indicators. Sooner or later you would give in, which would lead to a trend reversal.
Below is a table that shows the different divergence patterns.
Gann HiLo activator bars
The Gann HiLo Activator Bars are a custom trend following indicator. It shows the trend direction by printing bars on the candlesticks of the price chart. The bars only change color when the direction of the trend changes.
This indicator identifies the short-term trend direction taking into account the highs and lows as well as the close of each period. This makes it very responsive to trend changes. If you looked at it, it bears a resemblance to the behavior of the Heiken Ashi candles.
The Fisher indicator
The Fisher indicator is a trend after the oscillating indicator. An attempt is made to anticipate the trend direction based on probabilities. The hypothesis behind this is that price movements do not have a symmetrical probability of moving a certain distance. Instead, it is assumed that the current trend direction makes the price more likely to move in one direction than the other. It makes sense because when you look at the price movement, the price seems to tend to move with the trend rather than against it.
The Fisher indicator prints histogram bars in its own window. Positive histogram bars indicate an upward trend, while negative histograms indicate a downward trend. The trend changes don't happen too often. Instead, it exhibits fewer fake trend change signals compared to other trend following indicators.
The Fisher Divergence Forex Trading Strategy is a trading strategy based on divergence. This strategy takes the peaks and troughs of the Fisher indicator and compares them to the swing highs and swing lows of the price movement. Then, by comparing the Fisher indicator with the price movement, we were able to identify differences between the two. These deviations tend to indicate possible trend changes fairly accurately. Coupled with a confluence of trend reversals, divergences tend to have a win probability greater than 60%.
For the trend signals used, we will use the reversal signals generated by the Gann HiLo Activator Bars and the Fisher Indicator. A confluence of these two indicators would normally result in a profitable trade.
- Gann HiLo activator bars
Time window: Time frames of 1 hour, 4 hours and daily
Currency pair: Major and minor pairs
Trading session: Meetings in Tokyo, London and New York
Buy Trade Setup
- Look out for discrepancies between the lows of price action and the lows of the Fisher indicator
- A bullish divergence should be observed between the two
- The Fisher indicator should change to lime, indicating a bullish trend reversal
- The Gann HiLo Activator Bars should turn blue, indicating a bullish trend reversal
- Place an order to buy at the confluence of the above conditions
- Set the stop loss on the support under the entry candle
- Once the Fisher indicator turns red, close the trade
- Close the trade as soon as the Gann HiLo Activator Bars turn red
Sell Trade Setup
- Look for discrepancies between the swing highs of the price movement and the tops of the Fisher indicator
- A bearish divergence should be observed between the two
- The Fisher indicator should turn red, indicating a bearish trend reversal
- The Gann HiLo Activator Bars should turn red, indicating a bearish trend reversal
- Enter a sell order at the confluence of the above conditions
- Set the stop loss to the resistance above the entry candle
- Once the Fisher indicator switches to lime, close the trade
- Close the trade as soon as the Gann HiLo Activator Bars turn blue
Although divergence trading is one of the most overlooked trading strategies, it is still one of the most effective. In fact, it's one of the main strategies I personally use.
Given that the deviations are associated with a confluence of entry signals with high probability, this trading strategy should give traders an edge over other trading strategies.
The key to this strategy lies in mastering the correct divergences, or divergences that are meaningful enough. Minor deviations should be avoided as this may not have any impact on price development. Once you have mastered identifying discrepancies well enough, the rest should be easier. This is because for entries, after identifying deviations, just wait for the confluence and move the stop loss to the correct distance. If the price moves, you can move your stop loss to break even to protect the profits and see the price move in your favor.
Forex Trading Strategy Installation Instructions
Fisher Divergence's forex trading strategy is a combination of Metatrader 4 (MT4) indicator (s) and template.
The essence of this forex strategy is to transform the accumulated history data and trading signals.
Fisher Divergence's forex trading strategy provides the ability to spot various specifics and patterns in price dynamics that are invisible to the naked eye.
Based on this information, traders can assume further price movements and adjust this strategy accordingly.
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How do I install the Fisher Divergence Forex Trading Strategy?
- Download Fisher Divergence Forex Trading Strategy.zip
- * Copy mq4 and ex4 files to your Metatrader directory / Experts / Indicators /
- Copy the tpl file (template) into your Metatrader directory / templates /
- Start or restart your Metatrader client
- Select the chart and timeframe in which you want to test your forex strategy
- Right click on your trade chart and hover over "Template".
- Move right to select the Fisher Divergence Forex Trading Strategy
- You will see Fisher Divergence's Forex trading strategy available on your chart
* Note: Not all forex strategies come with mq4 / ex4 files. Some templates are already built into the MT4 indicators of the MetaTrader platform.
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