Forex trader breaks down five trades using cycle theory and divergence patterns. NZD/USD lost money on false breaks, while EUR/JPY worked with hidden divergence and a 1:2 risk-reward setup. Key lesson: wait for pullbacks in trends and use tight stops on aggressive entries.
Chapters
Hello everyone. So let's go ahead and cover a few trades again in order to show you what exactly are we looking for. Starting from the bottom, Kiwi dollar. Now the very first thing which pops up Pops up immediately is that we have. Let me just change the color here. That we have cycle on the one-hour chart. This is a double wave, and then we have another cycle, which is inside the second leg. Basically, the second leg is formed with another cycle on its own. This is where we get divergence between the big one. This is also where we get false break right here, again with another divergence. Okay, so basically we have divergence between these 2 with the false break, and we have another divergence between these 2, again with a false break here. And this is basically the idea behind— sorry about the phone— behind this, uh, behind this trade, which unfortunately pushed lower for a loss. Euro yen, another buy setup. And, um, this week we've been dealing mainly with the end of the cycles for many of them, and also with multiple false breaks. This is basically one of the best Combinations, guys. When we see divergences along with false breaks, this is what we love. Okay, so what do we have here? Let's go ahead and analyze it. First of all, we can check the cycle inside of it. This is a special cycle or triple cycle, doesn't really matter how you're going to define it. It gives us the same idea. Once the cycle is completed, We are looking for bullish pullbacks and bullish moves. This is the first wave we got, so basically we're expecting to see something like that. That's euro yen. Of course, we have here very strong level. We can see previously where the price spiked and pushed higher. Once again, the price coming to this zone, and we can see immediate push. Third time this is happening. Then attempt to go lower, but as we can see, the pressure is bullish. There is no momentum inside that move. And here once again, another false break and another false break. And basically the pair is refusing to gain momentum to go lower. This is where we got the breakout, a reversal situation, 2 waves pullback. And in my opinion, this is one of the most conservative setups and situations in general that we can be dealing with. A reversal pattern, pullbacks, hidden divergence forms, and we are attacking. Why this is one of the most conservative ways to trade? Because you let the trend move in the given direction, then you start seeing all these Science that we're going to see the reversal. Then we see the potential reversal with the momentum and everything, and we are not trying to break— to, to trade the breakout here, or we are not trying to catch it from the very bottom as we usually would do, as we do with a regular divergence. But with hidden divergence, we let the first leg develop itself, then we wait for the pullback, and once the divergence is completed and we got everything we need we start the attack. Okay, now the conservative way to protecting it would be here, which will worsen your risk-reward ratio of course significantly. Then you must understand what you're doing and to adapt your targets. And this is of course the aggressive one where you protect the immediate low being created after the divergence. This is where we got the divergences on the lower time frames. ABCD pullback, basically a perfect setup more or less for these buys, which also failed here with the aggressive stop loss. Now if you're wondering why are we using aggressive stop losses, well, very simple, because we are trading divergences With fixed risk reward of one to two. That means we want to catch from the market more than what we are willing to risk. For every one dollar we risk, we are looking to take two dollars. And when that happens, we need to make sure the protection is tiny and our entry is timed very well. Why? Because it's much easier. I think this is where the target was approximately to get 1:1 in terms of, let's say, 30 pips versus 15 pips. On the other hand, if this is my entry and my stop loss is 30 pips, then I need to wait and predict the market in a 60-pip move instead of 30-pip move. So that's basically the idea here. Now the next one, euro pound. We got a sell, and the sell is basically based on a few things. First of all, we have a few waves inside of it, 3 to be exact, and after 3 waves we would be expecting pullbacks. Second of all, we can see that this entire zone is full of supports and resistances. In our case, resistances because the price is moving upwards, and that means we're coming to these places and we can expect the price to push lower. Furthermore, false break number 1, false break number 2. Then after this pullback, I'm not sure if you would count that as Valid correction. For me, this is a valid correction, which means we have yet another attempt for the price to push lower. And here we can see the price started squeezing in this tiny, tiny rising wedge, if you can call it a rising wedge. Of course, bottom line is we have multiple divergences and bearish pressure forming all away All the way here. And then we can see the price is following this pattern, which in other words means we're near the top of it and we can be expecting after pullbacks to see something like that, right? We don't care about the second move up or down, we just care about this one. The pressure is high, so we do expect to see push lower. And as we can see, after small hesitation here, the price managed to push the price lower. Uh, let's take another one, EUR/CAD. This one was also interesting, pretty similar to the other euro pair, but basically we have triple structure here. Once again, false breaks at the bottom. And divergence on the histogram. So this is where, uh, we got— well, it could be said it was a bit late entry. Ideal entry would be here, but since the structure before that allows us the room up in terms of pullback, we're expecting a bigger pullback after this kind of move. Right, not just small correction and continuation. We are looking at this entry right here, which also managed to push upwards. Um, euro yen Aussie Kiwi was another hidden divergence. Excuse me. And this one basically what it did was first of all. The big move, we're seeing the bounces off of this level based on that divergence, and then we see hidden divergence. Now that could be from that high, from this high, or from that high. It wouldn't really change much, right? Those are 3 places where we're going to compare the hidden divergence. You can see that the hidden divergence was there. Next, the price is giving us the immediate pullback towards this breakout zone, and this is a very strong level indeed. I'll draw it like that, and then we have one below. Basically, we're entering this zone, that territory here, and attacking for possible continuation lower. So that would be all for this video, guys. I really hope you enjoyed it. If you have any questions at all How do we make the decisions? Why do we do certain things? Please post your comment below and I'll cover it in the next video. Don't forget to join us in our free Telegram channel where me and Vlad are posting signals and ideas and educational materials. It's all completely free, guys. Okay, so that will be all for this week. Divergence University trades. Stay tuned for the next one. Bye for now.
