Hidden Bullish and CFDs Hidden Bearish Divergence CFDs
Hidden divergence trading strategy is used as a possible sign for a cfd market cfd trend continuation after the cfds price has retraced. It is a trading signal that the original cfd trend is resuming. This is the best divergence setup to trade because it is in the same direction as that of the continuing market trend.
Divergence trading strategy
This divergence trading setup happens when cfds price is forming 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 cfds trend.
The example illustrated and shown below shows an image of this divergence trading setup, from screenshot the cfds price made a higher low (HL) but the indicator made a lower low (LL), this shows that there was a divergence signal between the cfds 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.
Divergence trading strategy
This confirms that a retracement move is complete & indicates underlying strength of an upward cfds trend.
CFDs Hidden Bearish Divergence
This setup happens when cfds price is forming 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 cfds trend.
The example illustrated and shown below shows an image of this cfd setup, from the screenshot the cfds price made lower high (LH) but the indicator made a higher high (HH), this shows that there was a divergence between the cfds 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 downwards trend.
Divergence trading strategy
This confirms that a retracement move is complete & indicates underlying strength of a downwards cfds trend.
Other popular technical indicators used are Commodities Channel Index technical indicator (CCI), Stochastic Oscillator, RSI & MACD. MACD & RSI are the best 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 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 cfds price is oversold, and sell when the cfds price is overbought.
Combining Hidden CFDs Divergence with Moving Average CFD Trading Crossover Strategy
A good indicator to combine these cfd setups is the moving average indicator using the moving average crossover method. This will create a good trading strategy.
Moving Average Crossover Method - Divergence trading strategy
In this divergence cfd strategy, once the trading signal is given, a trader will then wait for the moving average cross-over method to give a buy/sell cfd trading signal in same direction, if there's a bullish divergence setup between the cfds price and indicator, wait for the moving average crossover system to give an upward cross-over signal, while for a bearish divergence set-up wait for the moving average crossover system to give a downward bearish crossover signal.
By combining this Divergence strategy with other indicators this way a trader will avoid whipsaws when it comes to trading with this cfds trading signal.
Combining with CFDs Fibonacci Retracement Levels
For this example we shall use an upward market trend. The cfd instrument - We shall use the MACD indicator.
Because the hidden divergence is just a retracement in an upward cfd trend we can combine this cfd signal with most popular retracement tool that is the Fibonacci retracement levels. The example illustrated and shown below shows that when this cfd set-up appeared on the chart, the cfds price had just hit the 38.2% level. When cfds price tested this level, this would have been a good level to set a buy order.
Divergence trading strategy setup
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 set take profit for this trade. To do this a trader would need to use the CFDs Fib Expansion Levels.
The Fib expansion was drawn as illustrated & shown on the chart as illustrated and shown below.
Divergence trading strategy setup
For this example there were three take profit areas:
CFD Fibonacci Expansion Level 61.8% - 131 pips profit
CFD Trading Expansion Level 100.0% - 212 pips profit
CFD Trading Expansion Level 161.8% - 337 pips profit
From this divergence trading strategy combined with Fibonacci would have provided a good strategy with a good amount of profit set using these take profit areas.
