Hidden Bullish Divergence vs Hidden Bearish Divergence - Hidden Divergence Trading

Hidden Bullish Divergence vs Bearish Divergence

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

Hidden Bullish Trade Divergence

This pattern occurs when price is making a higher low ( HL ), but the oscillator (indicator) is showing a lower low ( LL ). To remember these setups easily think of these setups as W shapes on Chart patterns. It forms when there is a price retracement in an up-wardupwards trend.

The example below shows an image of this formation, from the screenshot the price made higher low ( HL ) but the indicator made a lower low ( LL ), this displays that there was a divergence signal between the price and indicator. This trading signal displays that soon the market uptrend is going to resume. In other words it portrays this was just a retracement in an uptrend.

This confirms that a market price retracement move is exhausted and indicates the underlying momentum of an uptrend.

Hidden Bearish Trade Divergence

This pattern occurs when price is making a lower high (LH), but the oscillator is showing a higher high (HH). To remember these setups easily think of these setups as Mshapes on Chart patterns. It forms when there is a retracement in a downward trend.

The example below shows an image of this formation, from the screenshot the price made lower high (LH) but the indicator made a higher high (HH), this displays that there was a divergence pattern between the price & indicator. This displays that soon the market downtrend is going to resume. In other words it portrays this was just a retracement in a downwards trend.

This confirms that a market price retracement move is exhausted and indicates underlying strength of a downtrend.

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

NB: Hidden divergence setup is the best type divergence setup to trade because it gives a signal that's in the same direction with the current market price trend, thus it has a high reward to risk ratio. It provides for best possible entry.

However, a trader should combine this setup with another indicator like the stochastic oscillator or moving average and buy when the currency is oversold, and sell when the currency is overbought.

Combining Hidden Divergence Setup with Moving Average Crossover Strategy Method

A good indicator to combine these setups is the moving average indicator using moving average cross over method. This will create a good strategy.

Moving Average Crossover Technique

In this method, once the signal is given, a trader will then wait for the MA cross over technique to give a buy/sell signal in the same direction, if there is a bullish divergence set up between the price and indicator, wait for the MA crossover system to give an upwards crossover signal, while for a bearish divergence pattern wait for the MA crossover strategy to give a downward bearish crossover signal.

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

Combining with Fib Retracement Levels

For this example we will use an upward market trend. The currency pair is GBPUSD. We shall use the MACD indicator.

Because the hidden divergence pattern is just a retracement in an up-wardupwards trend we can combine the trading signal with the most popular retracement tool that's the Fib retracement levels. The example below displays that when this set-up appeared on the chart, the price had just hit 38.20% level. When price tested this level, this would have been a good level to place a buy order on the GBPUSD currency.

Combining with Fibo Expansion Levels

In the example above once the buy trade was placed, a trader would then need to calculate where to set the take profit for this trade. To do this one would need to use the Forex Fibo Expansion Levels.

The Fibo expansion was drawn as illustrated & shown on chart as shown & illustrated below.

For this example there were 3 take profit areas:

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 Fib indicator would have provided a good strategy with a good amount of profit set using the take profit order levels.