This is the best indicator I currently use, and work well with the pair I trade (gbp-usd and eur-jpy). I guess you can understand how it works only by looking at the image. The top white line is the price, and the lower line is the indicator (I use Awesome Ocsillator). The red line is the divergence.
Regular divergence (Trend will change)
Hidden Divergence (Trend continue)
HH stands for Higher High
LH stands for Lower High
LL stands for Lower Low
HL stands for Higher Low
If there is an appearance of regular divergence, means that the trend will change. So, usually I place an order when the Awesome Ocsillator’s color changed. And, if there is an appearance of hidden divergence, means should hold the position. Sound simple ya? But simple doesn’t mean easy. I take a long time to train my eyes to spot the divergence, and after all..using this indicator have improve my trading.
Image credited from Babypips, tip from Betarian.
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