When you use oscillators you may recognize that the indicator and the price don't move in the same direction all the time. We compare the indicator and what happens with the price. For that start here from the indicator (inverted causality). Draw a TL in the subwindow from High to High or Low to Low (I don't like it on the chart because the chart gets messy quickly) and see the behavior of the further price.
It is a very good early-warning sign that the market is getting weak or strong and that you can tighten your stops or prepare for exit or entry. Which osci you use is up to you. I recommend a momentum setup (short periods) and here RSI/RSX, MACD and Stochastic have a similar results. The behavior between the Highs and Low aren't of interest. You can also take A/D line or Value Charts for more Divergences and Divergences from higher tfs are also very useful. Trend continuation, reversals like trend exhaustion or retracements, decide what you need for your trading style and look for those odds.
- It's no signal, just a sign. You need confirmations.
- Use only Highs of the indicator higher 50 or 0 (when range is from -100 till +100)
- Use only Lows of the indicator lower 50 or 0 (when range is from -100 till +100)
- Use Highs or Lows that are 'in view', no other peak is between. You can compare also Highs or Lows not being 'in view' either of the indicator or price, but don't use
Divergences when both aren't in view.
- There is no best Div-indicator. MACD is very good for trend exhaustion, but misses some other good opportunities.
- Don't let them draw by scripts, they don't find all Divs and are to slow for Scalping.
- When the retracement after a Div is small and will be broken in trend direction, it was likely an test then and an impulse follows.
With some exercise you have a nice edge in your arsenal and with a scalping setup most of the time you can make your way hand over hand along the price movements.