Hidden Bullish & CFDs Hidden Bearish Divergence CFD

Hidden divergence is used as a possible sign for a cfd trend continuation after the price has retraced. It's a signal that the original cfd trend is resuming. This is best setup to trade because it is in same direction as that of the continuing market trend.

CFDs Hidden Bullish Divergence

This setup happens when price is making 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 example explained and illustrated below shows an image of this cfd setup, from the screenshot the cfd price made higher low (HL) but the indicator made a lower low (LL), this shows that there was a diverging 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 upward cfd trend.

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 making 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 downward 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 downward trend.

This confirms that a retracement move is complete and indicates underlying strength of a downward 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 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 cfd instrument is oversold, and sell when the cfd instrument is overbought.

Combining Hidden Divergence with Moving Average Crossover Method

A good indicator to combine these cfd setups is the moving average indicator using moving average crossover method. This will create a good trading strategy.

Moving Average Crossover Method

In this strategy, once the signal is given, a trader will then wait for the moving average cross-over technique to give a buy/sell signal in the 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 upward cross-over signal, while for a bearish diverging setup wait for the moving average crossover system to give a downward bearish crossover signal.

By combining this cfd signal with other technical indicators this way one will avoid whip-saws when it comes to trading this cfd trade signal.

Combining with CFDs Fib Retracement Levels

For this example we shall use an upwards market trend. We shall use the MACD indicator.

Because the hidden divergence is just a retracement in an upwards cfd trend we can combine this cfd signal with the most popular retracement tool that is the Fibonacci retracement levels. The examples illustrated 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 set a buy order.

Combining with CFDs Fib Expansion Levels

In the cfd example above once the buy cfd trade was placed, a trader would then need to calculate where to place the take profit for this trade. To do this a trader 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.

For this example there were three take profit levels:

Expansion Level 61.80% - 131 pips profit

Expansion Level 100.00% - 212 pips profit

Expansion Level 161.80% - 337 pips profit

From this strategy combined with Fibonacci would have provided a good strategy with a good amount of profit set using these take profit areas.