Don’t rely on it blindly, by just accepting any type of divergence there is. If it structurally lines up for the move, it’s a great added bonus.

Divergences should be used in combination to gain more trust in the first break of structure, and OTE that follows after a divergence takes place.

Something like this;

In this case we have bullish order flow. Price leaves a weak high rollover, which we mark as BSL.

Price pulls back into discount PDA and forms a lower low. It runs previous SSL. Let’s imagine now that on DXY we have a divergence. So, where EU, let’s say, in the above example made a lower low. And instead of seeing a higher high on DXY we see a lower high. That is then confirmation for us that the tides are about to shift.

Another Annotation

Another way of checking out divergences is to add the symbol and compare it with your primary pairs on one chart.

Here you press the + icon and you can compare or add symbol

Here you can spot them easily by just comparing price

EU in this scenario printed another higher high, you would expect DXY to print a lower low then... But it fails to do so and prints a higher low.

That is our crack in correlation, and you can see how price than makes up its mind and chooses a direction to expand to.

Final Prerequisite

When you notice a divergence on DXY just remember to be nimble.

Slow down, forget about your bias for a minute, and take a neutral standpoint. It will help you avoid traps in the market.

So, when you spot the cracks in correlation, just be wary of where the divergence runs into.

In the example below, it can often enough be seen that the divergence will run into an opposing PDA and then take off from there.

Nimble Threading

Both grab liquidity and take opposing resting liquidity. EU takes a liquidity grab on BSL, whilst DXY does the inverse and takes out SSL.

DXY on M15 with MS

This then obviously also means that if we close back into the range, we can mark the market shifts as such.

However, if you look a lot closer, you can see that we have divergence between the two.

When EU took out SSL it created another lower low, whilst DXY failed to print a higher high, it printed a lower high, and then somewhat of equal highs after that.

The overall pictures changes quite quickly then, take a step back, and go back to a neutral bias. You will see how price will run into specific PDA’s and then run off chain.

DXY complete picture with divergence reversal;

Complete gem;