Lesson Learned: The Cost of Chasing Divergence

Morning everyone. Today's a relatively quiet data day, so it's a good time to reflect a bit. One lesson that still stings from earlier in my career, and honestly, still needs re-learning occasionally, is the danger of fixating on divergence without broader context. I'm talking about those times when you see, say, price making higher highs but your RSI or MACD printing lower highs, and you instantly think 'reversal imminent!'

I remember one particular $EURUSD trade where I was so convinced by a strong bearish divergence on the 4-hour chart that I went in with a significantly larger size than usual, completely ignoring the underlying fundamental narrative which was still quite bullish for the Euro at the time. I kept adding on small dips, convinced the divergence had to play out. The market, as it often does, decided to liquidate early bears before eventually correcting. My stop was in a logical spot, but my over-sizing meant the draw-down was far more painful than it needed to be, and I ended up closing out well before the eventual reversal did occur, just to preserve capital. It taught me that while technical divergence is a powerful tool, it's just one piece of the puzzle, and chasing it aggressively without fundamental alignment or proper risk management is a fast track to getting chopped up. Always consider the bigger picture and manage your size.