This is a very powerful forex technique. It can be used as following. The first one is lower lows and higher lows. The second one is called higher highs and lower highs. Lets see the first one.

Lower lows and higher lows: In the following picture, the upper part is the chart(you can say candlesticks chart) and the lower part is the MACD graph. As see in the picture, the chart shows the lower lows. That means the 2 dip is lower than the 1st dip. But at the same time if you observe the MACD graph, the first dip is lower than the 2nd dip. This forms divergence in a downtrend. When this is formed the trend will be reversed.

MACD Lower lows and Lower Highs:

The above picture showing lower lows in the chart but lower highs in MACD

But how to enter the trade and exit the trade? There are different ways to enter the trade.

1) You can use the MACD indicator itself to enter the trade. First let us see the MACD indicator setitngs.
MACD indicator Settings: You can use the default settings provided by the metatrader MACD indicator.
Parameters:
Fast EMA: 12
Slow EMA: 26
MACD SMA: 9

Colors:
Main: Main is the color used by the bars in the MACD histogram. You can select any color you want but I prefer black color for this. You can also set the width of the bars in the MACD histogram.
Signal: Singnal is the color used by the moving average line on the MACD histogram. I used red color in this.

Entering and exiting the trade with MACD:

above picture showing entering and exiting the trade with MACD

Entry: Now lets see how to enter the trade using MACD itself. Once you observe that lower lows is forming on the candlestick chart and a lower highs is forming on the MACD graph check the MACD graph. Once the MACD moving average line is leaving the MACD bars, that means the MACD moving average line started forming below the bars with out touching any MACD histogram bar you can enter the trade. In the folloiwng picture you can see the words “Entry” where the MACD moving average line left the bars and started forming below the bars. This is the entry point.

Exit: There are two kinds of exits. Below the zero point line and above the zero point line.

Below the zero point line: Once you enter the trade wait until the MACD moving average line touches the MACD histogram bars. Once the moving average line touches the histogram bar and if it is below the zero point line exit the trade.

Above the zero point line: Once you enter the trade and the histogram bars move above the zero point line the moving average line touches the histogram bars at the zero poing line. Once we are abvoe the zero point line wait until the moving average line leaves the histogram bars and start forming above the histogram bars. Once the moving average line started forming above the histogram bars exit the trade. In the picture below you can see the words “Exit” where the MACD moving average line left the histogram bar above the zero point line. You can exit the trade at this point.

2) You can use a third indicator to enter the trade. You can use Stochastic oscillator or Relative Strength Indicator (RSI) to enter the trade.

Check the following picture. The following picture shows a stochastic oscillator below the MACD.

Entering the trade with stochastic oscillator:

above picture showing entering the trade with stochastic oscillator

Stochastic Oscillator Settings:
You can use the default settings provided by the metatrader stochastic oscillator settings.
%K period: 14
%D period: 3
Slowing: 3

The levels are 20 and 80. When the moving averages cross below the 20 level that means it is oversold region. When the moving averages cross above the 20 level you can enter the trade. When the moving averages coress above the 80 level they are entering an overbought region. When they are trying to cross below the overbought regioun you can exit the trade.

You can use the Relative Strength Indicator (RSI) also. The following picture shows a relative strength index indicator below MACD.

Entering the trade with relative strength index

above picture showing entering the trade with relative strength index

Relative Strength Index Settings:
You can use the default settings provided by the metatrader relative strength index settings.
Period: 14

The levels are 30 adn 70. When the relative index line crosses below the 30 level that means that the currency is oversold. When it crosses above the 30 level you can enter the trade. When it crosses above the 70 level that menas the currency is overbought. When it is trying to cross below the overbought region you can exit the trade.

3) Candlestick Formations: You can use the candlestick formations also to enter the trade. If any engulfing cnadlesticks formed at the bottom and if the RSI or Stochasticks are in the oversold region then you can enter the trade.

The second one is higher highs and lower highs. Lets see this.

Higher highs and lower highs: In the following picture, the chart shows the higher highs. That means the 2 peak is much higher than the 1st peak. But at the same time if you observe the MACD graph, the first peak is higher than the 2nd peak. This forms divergence in a uptrend. When this is formed the trend will be reversed.

MACD higher highs and lower highs

Above picture showing higher highs on the chart but lower highs on MACD

You can use the the same techniques above to enter the trade.