Hidden Bullish and Hidden Bearish Divergence Commodity Trading

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

Commodities Trading 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 upwards Commodity Trading trend.

The example illustrated and shown below shows an image of this commodity trading setup, from the image the commodity price made higher low (HL) but the indicator made a lower low (LL), this shows that there was a diverging signal between the commodity price and indicator. This signal shows that soon the commodities trading market up commodity trend is going to resume. In other words it shows this was just a retracement in an upwards commodity trend.

This confirms that a retracement move is complete and indicates underlying strength of an upward commodities trend.

Commodity 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 Commodity Trading trend.

The example illustrated and shown below shows an image of this commodity trading setup, from the image the commodity price made a lower high (LH) but the indicator made a higher high (HH), this shows that there was a divergence between the commodity price & the indicator. This shows that soon the commodities trading market down commodity 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 commodities trend.

Other popular indicators used are CCI indicator (Commodity Trading Channel Index), Stochastic Oscillator, RSI & MACD. MACD & RSI are the best technical indicators.

NB: Hidden divergence is the best type to trade because it gives a signal that is 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 commodities trading setup with another indicator like the stochastic oscillator or moving average and buy when commodity is oversold, and sell when commodity is overbought.

Combining Hidden Divergence with Moving Average Crossover Method

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

Moving Average Crossover Technique

In this strategy, once the signal is given, a trader will then wait for the moving average cross over method to give a buy/sell signal in same direction, if there is a bullish divergence set up between the commodity price and indicator, wait for the moving average crossover system to give an upwards 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 commodity trading signal with other technical indicators this way one will avoid whipsaws when it comes to trading this commodity signal.

Combining with Commodities Trading Fib Retracement Levels

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

Because the hidden divergence is just a retracement in an upward commodity trend we can combine this commodity signal with most popular retracement tool that's the Fibonacci retracement levels. The example illustrated and shown below shows that when this commodities set up appeared on the chart, commodity price had just hit the 38.2% level. When commodity price tested this level, this would have been a good level to set a buy order.

Combining with Commodities Trading Fib Expansion Levels

In the commodities trading example above once the buy commodity trade was placed, a trader would then need to calculate where to place take profit for this trade. To do this a trader would need to use the Commodities Trading Fib Expansion Levels.

The Fibo expansion was drawn as shown on the commodity chart as illustrated and shown below.

For this example there were 3 take profit levels:

Expansion Level 61.8% - 131 pips profit

Expansion Level 100.0% - 212 pips profit

Expansion Level 161.8% - 337 pips profit

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