Hidden Bullish & CFD Hidden Bearish Divergence CFDs
Hidden divergence trading strategy is used as a possible sign for a cfd market cfd trend continuation after the price has retraced. It is a signal that the original cfd trend is resuming. This is the best divergence trading setup to trade because it is in same direction as that of the continuing market trend.
Divergence trading strategy
This divergence trading setup happens when price is forming a higher low (HL), but the oscillator (indicator) is showing a lower low (LL). To remember them easily think of them as W-shapes on Chart patterns. It occurs when there is a retracement in an upward cfds trend.
The examples illustrated below shows an image of this divergence trading setup, from the screen shot the cfd price made higher low (HL) but the indicator made a lower low (LL), this shows that there was a divergence signal between the cfd price and indicator. This signal shows that soon the cfd market up cfd trend is going to resume. In other words it shows this was just a retracement in an upwards cfd trend.
Divergence trading strategy
This confirms that a retracement move is complete and indicates underlying strength of an upward cfds trend.
CFD Hidden Bearish Divergence
This setup happens when price is forming a lower high (LH), but the oscillator is showing a higher high (HH). To remember them easily think of them as M-shapes on Chart patterns. It occurs when there is a retracement in a downwards trend.
The example explained and illustrated below shows an image of this cfd setup, from the screenshot the cfd price made a lower high (LH) but the indicator made a higher high (HH), this shows that there was a divergence between the cfd price and indicator. This shows that soon the cfd market down cfd trend is going to resume. In other words it shows this was just a retracement in a downwards trend.
Divergence trading strategy
This confirms that a retracement move is complete and indicates underlying strength of a downwards cfds trend.
Other popular indicators used are CCI indicator (Commodity Channel Index), Stochastic Oscillator, RSI and MACD. MACD and RSI are the best technical indicators.
NB: Hidden divergence is the best type to trade because it gives a signal that's in the same direction with the current market trend, thus it has a high reward to risk ratio. It provides for the best possible entry.
However, a trader should combine this cfd setup with another indicator like the stochastic oscillator or moving average and buy when the price is oversold, and sell when the price is overbought.
Combining Hidden CFDs Divergence with Moving Average CFD Trading Crossover Strategy
A good indicator to combine these cfd setups is the moving average indicator using the moving average cross-over method. This will create a good trading strategy.
Moving Average Crossover Technique - Divergence trading strategy
In this divergence cfd strategy, once the trading signal is given, a trader will then wait for the moving average cross over technique to give a buy/sell signal in same direction, if there is a bullish divergence set up between the cfd price and indicator, wait for the moving average crossover system to give an upwards cross over signal, while for a bearish divergence set-up wait for the moving average crossover system to give a downward bearish crossover signal.
By combining this Divergence trading strategy with other indicators this way a trader will avoid whipsaws when it comes to trading with this cfd trading signal.
Combining with CFDs Fibonacci Retracement Levels
For this example we shall use an upward market trend. The cfd instrument - We shall use the MACD indicator.
Because the hidden divergence is just a retracement in an upwards cfd trend we can combine this cfd trading signal with most popular retracement tool that is the Fibonacci retracement levels. The examples explained below shows that when this cfd setup appeared on the chart, the cfd price had just hit the 38.20% level. When cfd price tested this level, this would have been a good level to place a buy order.
Divergence trading strategy set up
Combining with CFD Fibonacci Expansion Levels
In the cfd example above once the buy cfd trade was placed, a trader would then need to calculate where to place take profit for this trade. To do this one would need to use the CFD Fibonacci Expansion Levels.
The Fibonacci expansion was drawn as illustrated and shown on the cfds chart as shown and illustrated below.
Divergence trading strategy set up
For this example there were 3 take profit levels:
CFD Fibonacci Expansion Level 61.8% - 131 pips profit
Fibonacci Expansion Level 100.0% - 212 pips profit
Fibonacci Expansion Level 161.8% - 337 pips profit
From this divergence trading strategy combined with Fibonacci would have provided a good trading strategy with a good amount of profit set using these take profit levels.
