Hidden Bullish and Hidden Bearish Divergence Stocks

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

Stock Hidden Bullish Divergence

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

The example illustrated & described below shows an image of this setup, from the screenshot the price made higher low (HL) but the technical indicator made a lower low (LL), this highlights that there was a diverging signal between the price and indicator. This signal highlights that soon the market up trend is going to resume. In other terms it portrays this was just a retracement in an upward trend.

This confirms that a market price retracement move is complete & indicates underlying strength of an upward stock trend.

Stocks Hidden Bearish Divergence

This pattern setup occurs 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 forms when there is a retracement in a downward trend.

The example illustrated & described below shows an image of this setup, from the screenshot the price made lower high (LH) but the indicator made a higher high (HH), this highlights that there was a divergence pattern between the price & the technical indicator. This highlights that soon the market down trend is going to resume. In other terms it portrays this was just a retracement in a downward trend.

This confirms that a market price retracement move is complete and indicates strength of a downwards stock trend.

Other popular indicators used are CCI indicator (CCI), Stochastic Oscillator Indicator, RSI & MACD. MACD & RSI are the best technical 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 the setup has a high reward to risk ratio. It provides for best possible entry.

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

Combining Hidden Divergence Setup with MA Crossover Strategy

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

MA Crossover Strategy

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

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

Combining with Stock Fib Retracement Levels

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

Because the hidden divergence pattern is just a retracement in an upwards trend we can combine the signal with the most popular retracement tool that is the Fibonacci retracement levels. The example illustrated and explained below highlights that when this stocks set-up appeared on the chart, the price had just hit 38.2% level. When price tested this level, this would have been a good point to place a buy order.

Combining with Fib Expansion Levels

In the example above once the buy trade was placed, one would then need to calculate where to place the take profit for this trade. To do this one would need to use the Stocks Fib Expansions.

The Fibonacci expansion was drawn as shown on the chart as shown below.

For this example there were three take profit areas:

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 Fibo would have provided a good strategy with a good amount of profit set using these take profit levels.