Trade Bitcoin Trading

Trade Divergences: Bullish and Bearish

In Bitcoin trading, classic divergence signals a possible price reversal. BTCUSD traders spot areas where price might turn the other way. This setup offers low-risk entries and good ways to exit open BTCUSD crypto trades.

This conventional divergence approach is a low-risk method for selling close to the peak or purchasing near the trough, significantly minimizing the risk associated with trades in relation to the potential reward. However, this technique has a tendency to generate numerous whipsaw signals, and many traders advise against its use.

Classic divergence setup in Bitcoin Currency trading is also used to predict the optimum point at which to exit an executed trade. If you already have an executed trade that is already profitable, a good way to identify a profit booking level would be the point where you identify this divergence trade setup.

There exist two fundamental categories of classic divergence, classified according to the prevailing direction of the Bitcoin price movement:

  1. Classic Bullish BTCUSD Trading Divergence
  2. Classic Bearish Divergence Trade Setup

Classic Bullish Bitcoin Trade Divergence

A classic bullish divergence happens when price forms lower lows but the indicator shows higher lows. The example below illustrates this setup.

Trade Bullish and Bearish Bitcoin Divergence - Classic Bitcoin Divergence on Charts

Classic Bullish Divergence Trading Setup - BTCUSD Chart

The example above uses MACD as a divergence trading indicator.

The aforementioned example shows a divergence setup between the BTCUSD price and the indicator, as the price created a lower low (LL) while the indicator produced a higher low (HL). This indication points to a potential shift in the market trend direction.

A classic bullish divergence signal can indicate a potential reversal in Bitcoin's price trend, shifting from downward to upward. This occurs when the price drops further, but the volume of selling decreases compared to earlier lows, a pattern often confirmed by the MACD technical indicator.

This shows under-lying weakness of the downward Bitcoin price trend.

Classic Bearish Divergence

The classical bearish divergence trading setup is evidenced when the price achieves a higher high (HH), but the affiliated oscillator exhibits a lower high (LH). The subsequent visual example clearly demonstrates this specific configuration of classic bearish divergence.

Trading Bitcoin Classic Divergences: Spotting Bullish and Bearish Setups

Classic Bearish Divergence Setup - BTCUSD Chart

The preceding example also incorporates the MACD indicator.

From the above example the price made a higher high (HH) but the trading indicator made a lower high (LH), this highlights there is a divergence setup between the BTC/USD Crypto price & technical indicator. This signal warns of a possible market trend direction reversal.

Classic bearish divergence signal warns of a possible shift in the Bitcoin price trend from upwards to downwards. This is because though the price headed higher the volume of buyers(bulls) that moved the price higher was less as highlighted by the MACD.

This indicates under-lying weakness of the upward Bitcoin price trend.

If you had used classic divergence setups to trade in the examples above, you would have received good signals to buy or sell at the best times. However, like other indicators, divergence signals can also be wrong sometimes. That's why it's smart to check divergence signals with other indicators, like RSI, Moving Averages, and Stochastic Oscillator, before trading Bitcoin.

To enhance classic divergence setups, pairing them with the stochastic oscillator can be effective. Waiting for the stochastic lines to confirm the direction of the divergence signal strengthens trade setup reliability.

Pair it with moving averages for better signals. Use the crossover system. It confirms trades from divergence patterns. Great for BTC USD setups.

Example illustration of MA Crossover Strategy

Trade Classic Bullish and Bearish Divergence on Bitcoin Charts - Bitcoin Divergence Trading Guide

MA Crossover Trading Method Combined with Classic Divergence Trading Setup

Once the difference signal appears, traders will watch the MA crossover way to see if there are signals that match the market trend. If there's a typical signal that suggests prices will go up, traders should wait for the MA crossover method to show an upward crossover signal. However, if there's a typical signal suggesting prices will fall, traders should expect a downward crossover from the Moving Average crossover strategy.

By using classic divergence signals along with other indicators, traders can lower the chance of whipsaws. This way, they can wait for the market to prove that it's changing direction before they do anything, which helps them avoid making trades too early.

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