Trade Bitcoin Trading

How Do You Trade Bitcoin Classic Bullish Divergence and Bearish Divergence

In bitcoin trading, classic divergence is used as a possible signal for a bitcoin trend reversal and is used by bitcoin traders when looking for an area where bitcoin price could reverse & start going in the opposite trend direction. For this reason this setup is used as a low risk entry method & also as an accurate way of exit out of a btcusd trade.

This strategy is a low risk method to open sell near the top or buy near the bottom, this makes the risk in your trades are very small compared to potential reward. However, this is one method with very many whipsaws and most traders do not recommend using it.

Divergence in Trading also is used to predict the optimum point/level at which to exit a trade. If you already have an open trade that is already profitable, a good way to identify a profit booking level would be the point where you identify this bitcoin trade setup.

There are 2 types, based on the direction of the Bitcoin trend:

  1. Classic Bullish divergence setup
  2. Classic Bearish divergence

BTCUSD Classic Bullish Divergence Trading Setup

Classic bullish divergence forms when btcusd crypto price is forming/making lower lows ( LL ), but oscillator trading is making higher lows (HL). The example illustrated below shows picture of this bitcoin cryptocurrency trade setup.

Identifying Trading Classic Bullish Divergence Setups & Trade Classic Bearish Divergence Setups in Trading

Crypto Classic Bullish Divergence Trading Setup

This examples uses MACD as a Bitcoin divergence indicator.

From the above exemplification the bitcoin price made a lower low(LL) but the indicator made a higher low(HL), this highlights there a divergence setup between the bitcoin price & indicator. The signal warns of a possible bitcoin crypto trend reversal.

Classic bullish diverging signal warns of a possible change in btcusd crypto trend from downward to upward. This is because even though the bitcoin market price went lower the volume of the sellers who pushed the bitcoin price lower was less as highlighted by MACD. This shows under-lying weakness of the down-ward BTC/USD CryptoCurrency trend.

Classic bearish BTC/USD Divergence Trading Setup

Classic bearish divergence setup occurs when bitcoin price is showing a higher high ( HH ), but the oscillator is lower high (LH). The image screenshot below illustrates and shows an exemplification of the setup.

Bitcoin Trade Classic Bearish Divergence Bitcoin Setup - How Do You Interpret Divergence Setup?

BTCUSD Trading Classic Bearish Divergence Trade Setup

This examples also uses MACD indicator

From the above example the btcusd crypto price made a higher high(HH) but the indicator made a Lower High(LH), this highlights there is a divergence setup between the btcusd crypto price & indicator. The signal warns of a possible bitcoin crypto trend reversal.

Classic bearish diverging signal warns of a possible change in the bitcoin trend from up to down. This is because even though the bitcoin market price went higher the volume of the buyers who pushed the bitcoin price higher was less as highlighted by MACD. This reflects underlying weakness of the upward Bitcoin trend.

In the above examples, if as a trader you had used divergence trade setup to trade you would have gotten good signals to enter or exit the transactions at an optimal point. However, divergence setups just like other trading indicators, is also prone to whipsaws. That is why it's always good to confirm the diverging signals with other indicators such as RSI, Moving Averages & Stochastic Indicator.

A good indicator to combine classic diverging setups is the stochastic oscillator and wait out for the stochastic indicator lines to move in the direction of the divergence trade setup so that to confirm the signal.

Another good indicator to combine with is the Moving Average indicator, in this trading indicator a bitcoin trader should use the MA Cross-over System

Example of MA Moving Average Crossover Technique Method

Strategies of MA Moving Average Crossover Method - Moving Averages Bitcoin Trading Cross over Strategy

Once the divergence setup is given, a trader will then wait out for the Moving Average cross-over system to give a signal in the same market direction, if there is a classic bullish setup, one will wait for the moving average system to give an upward crossover signal, while for a bearish classic divergence signal the trader should wait out for the Moving Average cross over system to give a downward bearish cross over.

By combining the classic divergence signals with other indicators this way, a trader will be able to avoid whipsaws in trading the classic divergence signals, because the trader will wait until the btcusd trading market has actually reversed and is already heading towards this direction, hence the trader will not fall into the trap of picking the market tops and bottoms.

Learn More Guides & Tutorials:

Forex Seminar Gala

Forex Seminar

Bitcoin Broker