How to Trade Hidden Bullish and Hidden Bearish Divergence
Hidden divergence setup is used as a possible signal for a trend continuation after the price has finished retracing. It's a signal the original Gold price trend is resuming. This is the best divergence setup to trade because its signal is in the same direction as that of the continuing price trend.
Hidden Bullish Divergence Setup
This hidden bullish divergence setup happens when price is making a higher low (HL), but the technical indicator is showing a lower low (LL). To remember easily consider them as W shapes on the price charts.
Hidden divergence signal happens when there is a retracement in an upwards gold price trend.
The illustration below shows this setup - from the screen shot the price made a higher low (HL) but the technical indicator made a lower low (LL), this shows that there was a hidden divergence trading signal between the Gold price and the indicator. This hidden divergence signal shows that soon the market upwards trend is going to resume. In other words it shows this was just a retracement in an upward trend.
Hidden Bullish Divergence Trade Signal - XAUUSD Chart
This hidden bullish divergence trading signal confirms that the retracement move is complete and indicates underlying momentum of an upwards trend.
Hidden Bearish Divergence
Hidden bearish divergence setup occurs when the price is forming/making a lower high (LH), but the technical indicator is displaying a higher high (HH). To remember them easily consider them as M-shapes on price charts.
Hidden bearish divergence setup occurs when there's a retracement in a downwards trend.
The illustration below shows the hidden divergence setup - from this example the Gold price made a lower high (LH) but the technical indicator made a higher high (HH), this shows that there was a divergence setup between the Gold price and the indicator. This shows that soon the market downward trend is going to resume. In other words it shows this was just a retracement in a downward trend.
Hidden Bearish Divergence Trade Setup Signal - XAUUSD Trading Chart
This hidden divergence setup confirms that a retracement move is complete & shows the under-lying momentum of a downward trend.Other popular indicators used are CCI trading indicator, Stochastic Oscillator Indicator, RSI & MACD indicators. MACD & RSI are the best technical indicators.
NB: Hidden divergence setup is the best type of divergence trading signal to trade because it generates a trading signal that is in the same direction with ruling trend, thus it has a high risk reward ratio - because it provides for the best possible entry for opening a position.
However, a gold trader should combine this setup with another indicator like the stochastic oscillator or moving average crossover method and buy when the technical indicator is showing the Gold price is oversold and price has left this region, & sell when the technical indicator is showing XAUUSD price is overbought & the price has left this region.
Combining Hidden Divergence Setup with MA Cross over Method
A good indicator to combine these hidden divergence set-ups is the moving average Moving Average indicator using the moving average MA cross over trading method. This will create a good trading strategy for generating signals & confirming these trading signals before trading them.
Moving Average Cross over Method - Gold Strategies
In this strategy, once the divergence trading signal is given/generated, a gold trader will then wait for the moving average MA cross over trading method to give a buy/sell trade signal in the same trend direction:
- If there is a bullish divergence setup between the price and indicator, wait for the moving average crossover method to give an upward crossover signal before opening a buy transaction.
- While for a bearish divergence setup wait for the moving average crossover method to give a downwards bearish crossover signal before opening a sell trade transaction.
By combining this hidden divergence setup with other indicators this way, a trader will avoid whipsaws when it comes to trading Gold metal using this divergence trading setup.
Combining Together Hidden Divergence Trade Signal with Fibonacci Retracement Levels
For this illustration we shall use an upwards market trend. We shall use MACD indicator.
Because the hidden divergence setup show that the ruling price move is just a retracement in an upwards trend we can combine this divergence trading signal with the most popular/liked retracement indicator which is the Fib retracements.
The illustration below shows that when this hidden divergence setup appeared on the Gold price chart, the price had just hit the 38.2% Fib retracement. When price tested this Fibo retracement - this would have been a nice level to open a buy order.
Combining Together Hidden Divergence Trade Signal with Fibonacci Retracement Levels
Combining Hidden Divergence Trade Signal with Fibo Extension Levels
In the example illustration displayed above once the buy trade was opened, a gold trader would then need to calculate where to set their takeprofit for this trade transaction. To do this one would need to use the Fibonacci Expansion Levels.
The Fib extension levels were drawn on the price chart like is shown below.
Combining Hidden Divergence Trade Signal with Fibonacci Extension Levels
For this exemplification there were three take-profit levels:
- Fibonacci Expansion Level 61.8%
- Fib Expansion Level 100.0%
- Fib Expansion Level 161.8%
Using this hidden divergence trading strategy combined with Fib tools would have provided a good trading strategy with a good amount of trading profit set using these Fib extension levels take profit order levels.
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