Bitcoin Setups Based on Divergence - Trading Cryptocurrency Using Divergence Trade Signals
The divergence setup is a trading method used by Bitcoin traders concerning BTCUSD to examine and forecast future Bitcoin price movements. This involves analyzing the Bitcoin price graph alongside an additional technical indicator. In this instance, we will utilize the MACD indicator.
To spot a divergence setup, look for two points where price hits a new high or low. But the MACD does not. This shows a mismatch between price and momentum.
To identify potential divergence setups, we examine the BTCUSD price chart for two discernible high points forming an 'M' configuration, or two low points creating a 'W' configuration. Subsequently, we check for the identical 'M' or 'W' shape appearing on the indicator utilized for trading decisions.
Example of a Bitcoin Price Divergence Trade Setup:
We can see two spots on the BTCUSD chart shown below, point A and point B (the highest points). The price chart shows these two points making an M shape.
Then using the MACD indicator, we look at the high points created by the MACD technical indicator, which are right under Chart points A and B.
We then draw one line on the Bitcoin Currency chart and another line on the MACD technical indicator as shown below.
Bitcoin - Divergence Setup - Drawing Divergence Lines
The BTCSUD price chart above shows an example of one of the 4 types of divergence setups, the one above is known as hidden bearish divergence, one of the best types to trade. Various types of divergence setups are explained in the next trading tutorial.
How to Spot Divergence Trade Setup
In order to identify a Bitcoin divergence signal we look for the following:
HH means Higher High - two highs, with the last one higher. LH is Lower High - two highs, last one lower. HL stands for Higher Low - two lows, last one higher. LL is Lower Low - two lows, last one lower.
First let us look at the illustrations of these terms:
M-shapes dealing with Bitcoin price Highs
W Shapes dealing with price lows
These concepts above are explained below using BTCUSD price charts and MACD indicator.
Example of M Shapes on Bitcoin Price Charts
Example of W-Shapes on Bitcoin Price Charts
Now that you've learned the divergence terms that are used to explain the divergence setups. Let us look at the 2 types of divergences and how to trade these setups on BTC USD Crypto Currency price charts.
There two types are of divergence setups:
- Classic BTCUSD Divergence
- Hidden Bitcoin Divergence
These two divergence setups are presented on the next guides.
Study More Topics and Courses:
- How to Use MetaTrader 5 Android BTC USD App Training for Newbies
- What is a Demo Account for BTC/USD?
- BTCUSD Trading Real Account Opening Course Tutorial
- Steps to register a BTC USD account for registering a BTC USD account
- How Can You Trade Bitcoin & Place a Pending BTCUSD Order in MT5 iPhone App?
- How Can Draw Fib Pullback in MT4 Software Platform?
