Trade Bitcoin Trading

How Do I Trade Classic Bullish Divergence & Bearish Divergence

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 classic divergence strategy is a low risk technique to sell near the top or buy near the bottom, this makes the risk in your trades/transactions very small relative to potential reward. However, this is one method with very many whipsaw signals & most traders do not recommend using it.

Classic divergence setup in Bitcoin Crypto 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 are 2 types of classic divergence - based on the direction of the Bitcoin price trend:

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

Classic Bullish Bitcoin Trade Divergence

Classic bullish divergence trading setup pattern forms when price is making lower lows (LL), but the indicator is making higher lows (HL). The example put on display below shows picture of this classic divergence set-up.

How to Trade Classic Bullish Bitcoin Divergence and How Do You Trade Classic Bearish Bitcoin Divergence on Bitcoin 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.

Classic bullish divergence signal warns of a possible change in the Bitcoin price trend from downwards to upward. This is because though price headed lower the volume of sellers that moved price lower was less than before when you compare the 2 lows - as illustrated by the MACD technical indicator.

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

Classic Bearish Divergence

Classic bearish divergence trading pattern setup occurs when price is making a higher high (HH), but the oscillator is making a lower high (LH). The example put on display below shows this of the classic bearish divergence setup.

How to Trade Bitcoin Classic Bullish Divergence & Bitcoin Classic Bearish Divergence Trading Setups

Classic Bearish Divergence Setup - BTCUSD Chart

The above example also uses 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.

In the examples set-out above, if you had used classic divergence setups to trade you'd have gotten good signals to enter or exit the trades at an optimal point. However, divergence signals just like other indicators is also prone to whipsaws. That is why it's always good to confirm the divergence signals with other indicators such as RSI, Moving Averages & Stochastic Oscillator before opening a Bitcoin trade.

A good indicator to combine classic divergence setup is the stochastic oscillator and wait for the stochastic indicator lines to move in the direction of the divergence signal so as to confirm the signal generated by this trade setup.

Another good technical indicator to combine with this setup is the moving average indicator, in this indicator a btc usd trader should use the Moving Average Cross-over System to confirm the trade signal generated by the divergence setup.

Example illustration of MA Crossover Strategy

How to Trade Classic Bullish Bitcoin Trade Divergence and Bearish Bitcoin Trade Divergence on Bitcoin Charts

MA Crossover Trading Method Combined with Classic Divergence Trading Setup

After the divergence signal is created, traders will monitor the MA crossover method for signals aligning with the same market trend. In cases of a classic bullish divergence signal, traders should wait for the MA crossover method to produce an upward crossover signal. Conversely, for a classic bearish divergence signal, traders ought to anticipate a downward bearish crossover from the Moving Average crossover strategy.

By combining classic divergence signals with additional indicators, traders can mitigate the risk of whipsaws. This approach allows them to wait for the market to confirm a reversal before acting on a signal, helping to avoid entering trades at market tops and bottoms prematurely.

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